Ever wonder how to predict someone's best move in a game?
John Forbes Nash Jr.
Ever wonder how to predict someone's best move in a game?
Imagine two friends, Alice and Bob, deciding whether to bring an umbrella to a picnic. If both bring umbrellas, they save money but get soaked. If neither brings one, they stay dry but miss the picnic. If one brings an umbrella and the other doesn't, the one with the umbrella gets soaked while the other enjoys the picnic.
Alice and Bob need to figure out the best choice without knowing what the other will do. The Nash Equilibrium is the point where neither Alice nor Bob can improve their situation by changing their decision alone.
Example
Alice thinks Bob will bring an umbrella, so she decides not to. Bob thinks Alice won't bring one, so he decides to bring it. If Alice changes her mind and brings an umbrella, she gets soaked, but if Bob changes his mind and doesn't bring one, he misses the picnic. They both end up making a choice that they can't improve on without knowing the other's choice.
Remember this
The Nash Equilibrium is the situation where Alice and Bob's decisions are optimal, given the other's choice.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
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Educational content, not financial advice.
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