Office Hours: Game Theory

In game theory, the Nash equilibrium is a concept that can help you analyze the behavior and outcomes of two or more people in a non-cooperative situation. The Nash equilibrium means that no person has an incentive to change their behavior or strategy, unless someone else changes their behavior or strategy.

For our Office Hours example, we’re going to look at a case involving two magicians, Bob and Al. If they both agree to only perform one show per week, they’ll rake in $10,000 each. But one or both could always cheat and perform more shows per week in an attempt to earn more money.

Now, to find the Nash equilibrium in this scenario, we’ll have to analyze Bob’s behavior based on Al’s behavior. And then we’ll have to analyze Al’s behavior based on Bob’s.

Check out this video and you’ll have the Nash equilibrium down in just a few minutes.