Nash Equilibrium and Prisoner’s Dilemma, Essay Example

Explain the meaning of Nash equilibrium. Is the Nash equilibrium in the prisoner’s dilemma Pareto optimal? Why? (Note that our text may not mention the term Pareto optimality, but it is worth taking a bit time to understand this term)

Nash equilibrium refers to a construct of game theory with an outcome in which each player does their very possible best given the choices of other players. Therefore, a unilateral adjustment of a particular player’s choices or actions with an assumption that the choices of his opponents remain fixed does not guarantee him any incremental benefit (Ohlin 2012, p.920). On the other hand, the prisoner’s dilemma describes a two-player situation where every player has two choices, and the outcome relies essentially on the concurrent choice or action executed by the other player. A Pareto optimal case illustrates an outcome where any effort of a player to gain incremental benefit through deviation will necessarily lead to someone else’ satisfaction loss. From the study, we can conclude that the concept of Nash equilibrium is not essentially in the construct of the prisoner’s dilemma Pareto optimal. Similarly, the solution of Pareto optimal is not necessarily a Nash equilibrium. For instance, interesting games such as the canonical Prisoner’s Dilemma, normally have Nash equilibrium conditions that are not defined in the Pareto optimal situation. Therefore, if the two ideologies were similar in every aspect, game theory would be a significantly reduced useful subject.

Generally, the concept of Nash Equilibrium is not correspondent to optimal outcome that are social in nature. Essentially, for a particular game there is a possibility of all the participants to enhance their playoffs through a unanimous agreement on the choice of the strategy different from the Nash Equilibrium. This condition is set to avoid the likelihood of players deviating from the stipulatory cooperative technique after its creation to enhance their playoffs in a way that disadvantages others or the group. On the contrary, Pareto optimal corresponds to a socially optimal outcome such that the improvement of an individual player’s playoff results in the disadvantage of at least one player. Even though Pareto optimal equilibrium is not a solution construct, it provides essential characteristics that can be used by the player to determine how to play.