The Nash Equilibrium, Explained. a Strategy Profile is a Nash… _ by Jørgen Veisdal _ Cantor’s Paradise

12.07.2024, 19:27 The Nash equilibrium, explained.
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GAME THEORY
The Nash equilibrium, explained

Jørgen Veisdal · Follow
Published in Cantor’s Paradise
10 min read · Oct 20, 2019
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If we all go for the blonde and block each other, not a single one of us is going to get her. So
then we go for her friends, but they will all give us the cold shoulder because no on likes to
be second choice. But what if none of us goes for the blonde? We won’t get in each other’s
file:///C:/Users/vovan/Downloads/web_cache.html 1/17
12.07.2024, 19:27 The Nash equilibrium, explained. A strategy profile is a Nash… | by Jørgen Veisdal | Cantor’s Paradise
way and we won’t insult the other girls. It’s the only way to win. It’s the only way we all
get laid.”
If we are to believe the movie, this is how the character John Nash in A
Beautiful Mind (2001) first explained his brilliant new discovery of “governing
dynamics” to his friends. In reality of course, this is not how the real John Forbes
Nash Jr. came upon the idea, nor would it have been how he would have described
his discovery. The purpose of this article is to provide a more accurate and complete
narration of how the Nash equilibrium came about, and what it means.
Estimated reading time is 10 minutes. Spotify mood music by James Horner. Happy
reading
What is a Nash equilibrium?

A Nash equilibrium is a solution concept for non-cooperative games involving two
or more players in which each player is assumed to know the equilibrium strategies
of the other players, and no player has anything to gain by changing only their own
strategy (Osborne et al, 1994). Informally, the theorem states:
A strategy profile is a Nash equilibrium if no player can do better by unilaterally changing

his or her strategy.
That is, in a two-person game, a pair of strategies constitute a Nash equilibrium if

player A’s choice is optimal, given player B’s choice, and B’s choice is optimal given
player A’s choice. No player can singlehandedly change their strategy in order to
obtain a more optimal result. Crucially, neither player knows what strategy the
other will choose, but acts solely on the basis of their own interests, given their
knowledge of other players’ interests. The finding generalizes to n players. Formally:
Formal definition of a Nash equilibrium

Let (S,f) be a game with u players Sᵢ is the set of strategies for
player i, S = S₁ x S₂ x ... x Sᵤ is the set of strategy profiles and
f(x) = (f₁(x),...,fᵤ(x)) is its payoff function evaluated at x ∈ S.
Let xᵢ be a strategy profile of player i and x₋ᵢ be a strategy
profile of all players except player i.
When each player i ∈ {1,...,u} chooses a strategy xᵢ, resulting in a
strategy profile x = (x₁,...,xᵤ) then player i obtains payoff fᵢ(x).
Note that the payoff depends on the strategy profile chosen, i.e. on
the strategy chosen by player i as well as the strategies chosen by
all the other players.
A strategy profile x* ∈ S is a Nash equilibrium if no unilateral

definition in strategy by any single player is profitable for that
player, that is
∀i,xᵢ ∈ Sᵢ : fᵢ(x*ᵢ, x*₋ᵢ) ≥ fᵢ(xᵢ,x*₋ᵢ)
Proof of the Nash Equilibrium

Nash’s thesis proof (1950c) used the Brouwer’s fixed-point theorem. Awarding credit
to David Gale, Nash later published a simpler proof of the same result, using the
Kakutani fixed-point theorem:
Proof of the existence of Nash Equilibria using the Kakutani fixed-

point theorem (Nash, 1951)
To prove the existence of a Nash Equilibrium (NE), let rᵢ(σ₋ᵢ) be
the best response of player i to the strategies of all other
players.
rᵢ(σ₋ᵢ) = arg max uᵢ(σᵢ, σ₋ᵢ)
Here, σ ∈ Σ where Σᵢ x Σ₋ᵢ is a mixed strategy profile in the set of

all mixed strategies and uᵢ is the payoff function for player i.
Define a set valued function r: Σ → 2^Σ such that r = (rᵢ(σ₋ᵢ),
r₋ᵢ(σ₋ᵢ). Proving the existence of a Nash equilibrium is equivalent
to showing that r has a fixed point.
Kakutani's fixed point theorem guarentees the existence of a fixed

point if the following four conditions are satisfied:
1. Σ is compact, convex and non-empty
2. r(σ) is nonempty
3. r(σ) is upper hemicontinuous
4. r(σ) is convex
Condition 1 is satisfied from the fact that Σ is a simplex and thus

compact. Convexity follows from players' abilities to mix
strategies. Σ is non-empty as long as players have strategies.
Condition 2. and 3. are satisfied by way of Berge's maximum theorem.
Because uᵢ is continuous and compact, r(σ) is non-empty and upper
hemicontinuous.
Condition 4 is satisfied as a result of mixed strategies. Suppose

σᵢ, σᵢ' ∈ r(σ₋ᵢ), then λσᵢ + (1 - λ)σᵢ' ∈ r(σ₋ᵢ), i.e. if two
strategies maximize payoffs, then a mix between two strategies will
yield the same payoff.
Therefore, there exists a fixed point in r and a Nash equilibrium.
Examples
A formal game typically consists of three elements: players, strategy sets and payoff
functions for each player. The payoff functions represent each players’ preferences
over the strategy sets, where a strategy set is a list of strategies for each player in the
game. We can illustrate the three elements in an example figure called a payoff
matrix for games of two players, featuring two strategies for each:
Left: Payoff matrix for game 1, a “coordination game”. Right: Payoff matrix for game 2, the “matching pennies”
game.
In each of the games, both players can choose between two strategies, labeled A and
B.
Pure-strategy Nash equilibrium
A pure-strategy Nash equilibrium is a strategy set with the property

that no single player can obtain a higher expected payoff by
deviating unilaterally and playing an alternate strategy
In game 1, if they choose different strategies (A,B) or (B,A), both get payoffs of 0. If
they both choose strategies A, they both get a payoff 2. If they choose strategies B,
they both get a payoff 1. The strategy sets (A,A) and (B,B) hence result in Nash
equilibria, as deviation of a single player would result in a lower payoff for that
player. In game 2, if they choose different strategies (A,B) or (B,A), player 1 gets a
payoff of -1 and player 2 a payoff of 1. If they both choose A or both choose B, player
1 gets the payoff of 1 and player 2 the payoff of -1. There are no pure-strategy Nash
equilibria in this game, because in each strategy set, one of the players stands to
gain from deviating.
Mixed-strategy Nash equilibrium
One of Nash’s results was to show that there must exist at least one Nash equilibrium
point in all finite games. Since no pure-strategy Nash equilibrium exists for game 2,
there must exist one in mixed strategies:
A mixed-strategy Nash equilibrium is a strategy set with the

property that at least one player is playing a randomized strategy
and no player can obtain a higher expected payoff by deviating
unilaterally and playing an alternate strategy
In cases such as game 2, instead of choosing a single strategy, players can instead
choose probability distributions over the set of strategies available to them. In
equilibrium, each player’s probability distribution makes all others indifferent
between their pure strategies. For instance, as player 1 we can play A half the time
and B half the time, and let the flipping of a coin decide when we play which. Player
2’s only rational response will have to be to do the same. As such, a mixed-strategy
Nash equilibrium in the matching pennies game exists if both play A and B with
equal probability simultaneously.
Interpretations
Nash in his thesis proposed two ways of thinking about his equilibrium concept:
One based on rationality; and
One based on statistical populations;
In the rationality interpretation, players are perceived as rational and they have
complete information about the structure of the game, including all of the players’
preferences regarding possible outcomes, where this information is common
knowledge. Since all players have complete information about each others’ strategic
alternatives and preferences, they can also compute each other’s optimal choice of
strategy for each set of expectations. If all of the players expect the same Nash
equilibrium, and the game is played only once, then there are no incentives for
anyone to change their strategies.
In the interpretation according to statistical populations, Nash states that “[i]t is

unnecessary to assume that the participants have full knowledge of the total structure of
the game, or the ability and inclination to go through any complex reasoning processes”.
This because “What is assumed is that there is a population of participants for each
position in the game, which will be played throughout time by participants drawn at
random from the different populations. If there is a stable average frequency with which
each pure strategy is employed by the average member of the appropriate population,
then this stable average frequency constitutes a mixed strategy Nash equilibrium.” (Nash,
1950c).
As Harold Kuhn would later write:
"The Nobel selection committee apparently took the two

interpretations that are contained in the thesis seriously. The
rational interpretation could have been argued by Cournot, but the
statistical interpretation, which is so important for biological
games, is wholly original. Although the nature of non-cooperative
games is explained in all three of these papers, only the thesis
contains an exposition of these two interpretations. When asked at
the Nobel seminar why the interpretations were not included in the
Annals paper. Nash responded, "I don't know whether it was just
pruned down in style for the Annals of Mathematics."
- Excerpt, "The Essential John Nash" by Kuhn et al (2002)
Discovery
Rather than what was depicted in the movie, as his biographer Sylvia Nasar writes,
Nash came upon the idea when he was an graduate student at Princeton University,
researching the mathematical modeling of games of strategy and bargaining
between economic actors. As Nasar writes,
“A few days after the disastrous meeting with von Neumann, Nash
accosted David Gale. “I think I’ve found a way to generalize von
Neumann’s min-max theorem,” he blurted out. “The fundamental idea is
that in a two-person zero-sum solution, the best strategy for both
is … The whole theory is built on it. And it works with any number
of people and doesn’t have to be a zero-sum game!”
- Excerpt, "A Beautiful Mind" by Sylvia Nasar (1998)
The conversation between Nash and David Gale was recounted by Gale himself to
Nasar in 1995. Nash was at the time working on the so-called ‘bargaining problem’
where two individuals have the opportunity for mutual benefit, but no action taken
by one of the individuals unilaterally (without consent) can affect the well-being of
the other. Think of the classic “divide and choose protocol” of two people trying to
divide a cake evenly, where one carves and the other chooses which piece he or she
wants, providing a so-called envy-free cake-cutting procedure.
Characteristically, as Nasar writes, Gale was less enchanted by the possible

applications of Nash’s new result than the mathematics, stating in 1995 that “The
mathematics was so beautiful. It was so right mathematically.”
“Gale realized that Nash’s idea applied to a far broader class of

real-world situations than von Neumann’s notion of zero-sum games.
“He had a concept that generalized to disarmament”
- Excerpt, "A Beautiful Mind" by Sylvia Nasar (1998)
Gale also helped Nash claim credit for the result as soon as possible by drafting a
note to the National Academy of Sciences. Solomon Lefschetz submitted the note on
their behalf, and the result appeared in less than a single page entitled Equilibrium
points in N-person games in the 36th volume of the Proceedings of the National
Academy of Sciences in January of 1950.
Nash (1950b). Equilibrium Points in N-person Games. Proceedings of the National Academy of Sciences 36
(1).
Epilogue
Nash’s thesis would eventually spawn three journal papers and a Nobel Prize in
Economics (1994).
Journal papers
The three articles contain three different proofs of the existence of Nash equilibria.
The first, entitled Equilibrium Points in N-person Games (1950b) is the note Nash and
Gale drafted for the Proceedings of the National Academy of Sciences. The second,
called Non-Cooperative games (1951) was published in the Annals of Mathematics Vol.
54 (2). In Two-person cooperative games (1953), published in Econometrica 21, Nash
extended his work on the bargaining problem (Nash, 1950a) to a wider class of
situations in which threats can a play a role (Kuhn et al, 2002).
Nobel Prize
Several weeks before the 1994 Nobel prize in economics was announced on Oct. 11, two
mathematicians — Harold W. Kuhn and John Forbes Nash Jr. — visited their old teacher,
Albert W. Tucker, now almost 90 and bedridden, at Meadow Lakes, a nursing home near
here. Mr. Nash hadn’t spoken with his mentor in several years. Their hour-long
conversation, from which Mr. Kuhn excused himself, concerned number theory.
When Mr. Nash stepped out of the room, Mr. Kuhn returned to tell Mr. Tucker a stunning
secret: Unbeknownst to Mr. Nash, the Royal Swedish Academy intended to grant Mr. Nash
a Nobel Prize for work he had done as the old man’s student in 1949, work that turned out
to have revolutionary implications for economics. The award was a miracle. — Nasar,
1994.
On the 11th of October 1994, Sveriges Riksbank Prize in Economic Sciences in

Memory of Alfred Nobel announced that the 1994 Nobel Prize in Economics would
be awarded to Dr. John Forbes Nash, Jr. for his pioneering analysis of equilibria in
the theory of non-cooperative games:
John F. Nash introduced the distinction between cooperative games,

in which binding agreements can be made, and non-cooperative games,
where binding agreements are not feasible. Nash developed an
equilibrium concept for non-cooperative games that later came to be
called Nash equilibrium.
Harold Kuhn (left) and Nash (right) (Photo: Denise Applewhite, Office of Communications, Princeton
University)
This essay is part of a series of stories on math-related topics, published in Cantor’s

Paradise, a weekly Medium publication. Thank you for reading!
Mathematics Math Economics Science Game Theory
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Written by Jørgen Veisdal

6.2K Followers · Editor for Cantor’s Paradise
Editor-in-Chief at Cantor’s Paradise. Writer at www.privatdozent.co
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12.07.2024, 19:27 The Nash equilibrium, explained.

A strategy profile is a Nash… | by Jørgen Veisdal | Cantor’s Paradise

Open in app Sign up Sign in

Photo: © 2001 Imagine Entertainment

The Nash equilibrium, explained

What is a Nash equilibrium?

A strategy profile is a Nash equilibrium if no player can do better by unilaterally changing

That is, in a two-person game, a pair of strategies constitute a Nash equilibrium if

Formal definition of a Nash equilibrium

A strategy profile x* ∈ S is a Nash equilibrium if no unilateral

Proof of the Nash Equilibrium

Proof of the existence of Nash Equilibria using the Kakutani fixed-

Here, σ ∈ Σ where Σᵢ x Σ₋ᵢ is a mixed strategy profile in the set of

Kakutani's fixed point theorem guarentees the existence of a fixed

Condition 1 is satisfied from the fact that Σ is a simplex and thus

Condition 4 is satisfied as a result of mixed strategies. Suppose

Therefore, there exists a fixed point in r and a Nash equilibrium.

Pure-strategy Nash equilibrium

A pure-strategy Nash equilibrium is a strategy set with the property

A mixed-strategy Nash equilibrium is a strategy set with the

One based on rationality; and

One based on statistical populations;

In the interpretation according to statistical populations, Nash states that “[i]t is

As Harold Kuhn would later write:

"The Nobel selection committee apparently took the two

- Excerpt, "The Essential John Nash" by Kuhn et al (2002)

Characteristically, as Nasar writes, Gale was less enchanted by the possible

“Gale realized that Nash’s idea applied to a far broader class of

On the 11th of October 1994, Sveriges Riksbank Prize in Economic Sciences in

John F. Nash introduced the distinction between cooperative games,

This essay is part of a series of stories on math-related topics, published in Cantor’s

Mathematics Math Economics Science Game Theory

Written by Jørgen Veisdal

6.2K Followers · Editor for Cantor’s Paradise

Editor-in-Chief at Cantor’s Paradise. Writer at www.privatdozent.co

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