In: Economics
Define the term Nash equilibrium. In general, what can be claimed about the existence, uniqueness, and Pareto optimality of Nash equilibria? Support your answers with an appropriate illustration. (graph)
Nash Equilibrium
Players do not gain anything by changing their strategy unilaterally.
Every person plays a pure strategy - Pure strategy Nash Equilibrium. Each player plays only one action with probability 1.
Unique, non-symmetric pure Nash Equilibrium - rent-seeking games
Assumptions - production function of agents for lotteries are concave, strictly increasing, and, twice differentiable. Exact solutions can be obtained for numerous examples.
Pareto-optimal