Marys

Choices
(y)
Janes
Choices
(x)

(x
,
y)

Be
nice

Gossip

Be
nice

(3,
3)

(1,
9)

Gossip

(9,
1)

(2,
2)

Nash
equilibrium:
A concept of game theory where the optimal outcome of a game is one where
no player has an incentive to deviate from his or her chosen strategy after
considering an opponent's choice.
A common dilemma we face in life: to either be nice or gossip to a friend.
If both of us choose to be nice, the atmosphere would be pleasant, giving 3
satisfaction points to both.
However, if one gossips while the other remains nice, the one who gossips gets
more satisfaction (9 points) since the opponent did not try to defend herself
against the rumors (1 point).
If both gossips, the atmosphere would be awkward, giving rise to a satisfaction
points of two to each player.
To evaluate the outcome, we consider the bimatrix given above.
Nash equilibrium: both players are nasty (Pareto Inferior Nash equilibrium) since
the outcome would be better if both players were nice.

The explanation of the Nash equilibrium is as followed:

As the Nash equilibrium is determined after considering the opponents choice,
from Marys point of view, there are 2 possibilities:
1) Jane chooses to be nice
2) Jane gossips
NICE
Mary would get satisfaction points of 3 if she chooses to be nice, but 9 if she
chooses to gossip. Hence, she would opt for gossiping.
NASTY

Mary would get satisfaction points of 1 if she chooses to be nice, but 2 if she
chooses to gossip. Hence, she would still choose to gossip.
Looking at the x values, the same goes for Jane. Hence, the Nash equilibrium is
established at (2,2), when both chooses to gossip.