A Method to Select Best Among Multi-Nash Equilibria. (April 2023)

• Record Type: Journal Article
• Authors: Punniyamoorthy, M.; Abraham, Sarin; Thoppan, Jose Joy
• Is Part Of: Studies in microeconomics. Volume 11:Number 1(2023)
• Page Start: 101
• Page End: 127
• Publication Date: 2023-04
• Subjects: Game theory -- two-person non-zero-sum game -- risk dominance -- payoff dominance -- mixed Nash equilibrium selection; Microeconomics -- Periodicals; 338.505
• DOI: 10.1177/23210222211024388
• Languages: English
• ISSNs: 2321-0222

Abstract

A non-zero sum bimatrix game may yield numerous Nash equilibrium solutions while solving the game. The selection of a good Nash equilibrium from among the many options poses a dilemma. In this article, three methods have been proposed to select a good Nash equilibrium. The first approach identifies the most payoff-dominant Nash equilibrium, while the second method selects the most risk-dominant Nash equilibrium. The third method combines risk dominance and payoff dominance by giving due weights to the two criteria. A sensitivity analysis is performed by changing the relative weights of criteria to check its effect on the ranks of the multiple Nash equilibria, infusing more confidence in deciding the best Nash equilibrium. JEL Codes: C7, C72, D81