5. Nash equilibrium: bad fashion and bank runs

Game Theory (ECON 159) We first define formally the new concept from last time: Nash equilibrium. Then we discuss why we might be interested in Nash equilibrium and how we might find Nash equilibrium in various games. As an example, we play a class investment game to illustrate that there can be many equilibria in social settings, and that societies can fail to coordinate at all or may coordinate on a bad equilibrium. We argue that coordination problems are common in the real world. Finally, we discuss why in such coordination problems--unlike in prisoners' dilemmas--simply communicating may be a remedy. 00:00 - Chapter 1. Nash Equilibrium: Definition 09:31 - Chapter 2. Nash Equilibrium: Examples 23:13 - Chapter 3. Nash Equilibrium: Relation to Dominance 31:53 - Chapter 4. Pareto Efficient Equilibria in Coordination Games: The Investment Game 53:11 - Chapter 5. Pareto Efficient Equilibria in Coordination Games: Other Examples Complete course materials are available at the Yale Online website: online.yale.edu This course was recorded in Fall 2007.