Question

In: Economics

From the Economics chapter, we learnt that Nash Equilibrium is a situation where, given the strategies...

From the Economics chapter, we learnt that Nash Equilibrium is a situation where, given the strategies that everyone else is playing, no player can be better off by changing his strategy.

Do you think it is possible to achieve Nash Equilibrium in real life? (Other than the example of Prisoner's Dilemma.)

If yes, what kind of situations would these be in?

If no, what are the factors in that situation would prevent it from happening?

No two situations are the same, so please elaborate with examples and a payoff matrix if that helps illustrate your explanation!

Discuss and Elaborate in Essay/Report Format by providing reasons to support your argument (Minimum 500 words).

*PLEASE TYPE YOUR ANSWER (NO SCREENSHOTS OR IMAGES) IN FULL SENTENCE/PARAGRAPH/REPORT FORMAT, NO POINT FORM. THANK YOU IN ADVANCE

Solutions

Expert Solution

In Industrial Organization theory and Game Thoery, Nash Equilibrium essentially signifies a situation or circumstance in which all the concerned entities and individuals involved in that situation are better off and hence, does not have any incentive to change their chosen and existing strategies or action in the particular circumstance or situation. Therefore, in Nash Equilibrium, all the involved or concerned individuals or entities tend to choose their respective best strategies under the existing circumstance or situation. Nash Equilibrium is practically applicable in many of the real-life situations in which all the concerned entities are attempting to maximize their personal satisfaction or utility under any given situation or circumstances which can be typically measured by the respective payoffs of the entities or individuals. For example, in the case of climate change or conservation negotiation in the world, each nation would have a payoff or benefit from undertaking any respective action or strategy. Let's assume that if any county or nation adopts various measures or policies to save or conserve the environment, then its payoff or economic benefits ideally depend on the actions or strategies undertaken by other countries or nations. If any individual nation adopts the measures against climate change and other nations don't then it would experience most of the economic harm as it's economic growth or progress would be negatively affected compared to the rest of the world and let's assume that it's payoff would be 0. Now, in the same circumstance, if all other nations also cooperate with the nation or country and implement same or similar measures then the particular nation is relatively better off from an economic point of view as all the countries implementing the concerned measures would experience the identical economic predicaments and in this case, the individual payoff of the country would be 50 assumably. Now, alternatively, a particular country can also decide not to adopt or implement the necessary measures or policies to fight or combat climate change and if the other countries also choose to do the same then every country would be able to regulate or accelerate economic growth or progress accordingly with their respective goals, objectives, and targets and in this case, let's assume that the individual payoff of each individual country be also 50. Now, in this context, if the other countries decide to adopt the measures or policies to combat climate change and the particular country doesn't, then it would have a comparatively higher economic growth and progress relative to the other countries or rest of the world and hence, would have a higher payoff as well, which is 100 let's assume since the country would experience faster economic growth and development compared to the rest of the world and maintain its existing economic structure and patterns. Thus, in this instance the possible payoffs of individual countries from adopting the anti-climate policies or measures are 0 and 50 depending on the actions or strategies of the other countries in the rest of the world. The possible payoffs of not adopting the concerned measures or policies, on the other hand, are 50 and 100 again contingent on the respective strategies or actions undertaken by the other countries. Hence, clearly, the individual countries are better off not to undertake any action or measure to combat climate change because of the higher possible payoffs compared to taking the necessary measures or policies and no country would have any economic incentive or motivation to change their strategies or actions considering the comparison between the possible payoffs from undertaking both strategies or actions available to them in this particular instance. Thus, in this case, all the countries are better off choosing not to take any anti-climate change measures or policies without any practical incentive to change their actions or strategies which qualifies or justifies this as the Nash Equilibrium in this specific situation or scenario.


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