CPO-2002 Lecture 8: Lecture 8
Document Summary
An important solution concept for games is a nash equilibrium. A nash equilibrium is a set of strategies (one for each player) such that no player has an incentive to unilaterally (individually) switch to another strategy. Individual rational pursuit of self-interest leads to a state of affairs less preferred by all players. Special conditions may be required to secure cooperation. Very few interactions in the real world occur only once and then disintegrate thereafter. Rather in the real world, there is some horizon of interaction. With almost all finite horizons, cooperation is difficult to originate and maintain. However, with an infinite horizon, the situation becomes more interesting. An infinite horizon implies that players of this game will have an infinite number of opportunities to repeat play. As a result, if the value of cooperation is large and exceeds what can be gained in the short term by cheating, then players may willingly opt to cooperate (trust develops)
