Nash Equilibrium Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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The Nash equilibrium is the central equilibrium theory in noncooperative game theory. A Nash equilibrium is an outcome where no individual would be better served by changing his or her strategy, considering the strategy choices of all other players thinking the same way. It is the outcome of all individuals in a scenario, their decisions interact and they all seek to maximize their own welfare or utility knowing that others do so as well. John Nash, a mathematician, defined and proved this result in his 1950 dissertation. The Nash equilibrium concept is typically applied to situations in which two or more individuals are making decisions, one or more of their outcomes are influenced by the decisions of others, and they incorporate the decision making of others into their calculations when making their own decisions. Some assumptions underlie the Nash equilibrium, including rationality and, usually, a degree of knowledge regarding other players’ wants and beliefs.

The Nash equilibrium has been applied to a variety of situations including imperfect competition in markets, social interaction, animal behavior, and international policy. Nash equilibria are not always socially desirable. Often, on topics of environmental concern, the Nash equilibrium is a typical or likely outcome, but not optimal. For cases of public goods and common property resources dominated by individual decisions rather than government oversight, the socially desirable or socially efficient outcome is not achieved because individuals mostly pursue their own welfare. Individual utility maximization can lead to Nash equilibrium outcomes in which everyone is worse off than if they had cooperated. These outcomes often arise when costs from behaviors are borne by society or a larger group, while the benefits of those behaviors accrue to individuals.

Such is the case for environmental scenarios as varied as maintaining a community garden or the Atlantic cod fishery. In such cases it is typically in an individual’s best interest that all other players make choices contributing to the socially optimal outcome, while they themselves make a choice that benefits the individual, a behavior known as “freeriding.” In the case of fishing, for example, an individual fisherman may ignore legal or conventional fishing limits, knowing (or hoping) that other fishers will not, thereby maximizing his fishing take at the expense of others. Since all fishers act with the same knowledge and motivation, in theory the result is one in which all fishers behave in this way-reaching a Nash equilibrium that is undesirable, since it leads to overfishing and depletion of the resource for all involved. This is the theorized reason that unregulated fishing, hunting, logging, or other resource extraction can lead to rapid depletion. Government intervention can often improve these situations by limiting individual options.

Efforts to control climate change are an example of individual behavior leading to a socially undesirable outcome. Carbon dioxide emissions on their own do not have negative local impacts. When there are positive costs to limiting carbon dioxide emissions, the costs must be borne by individuals or individual nations, but the benefits of carbon dioxide suppression are spread across the entire planet. Without a powerful authority capable of enforcing a socially optimal agreement among nations, this reduction is unlikely to occur when free-riding options exist or individual priorities differ.

Much research has been done regarding means of achieving a social optimal that differs from a Nash equilibrium. Researchers in cooperative game theory posit that binding contracts, possibly involving side payments, might help, and theoretical and behavioral social research suggests that punishment for cheating or free-riding can be useful when games are repeated.

Bibliography:

Colin Camerer, Behavioral Game Theory (Princeton University Press, 2003);
Herbert Gintis, Game Theory Evolving (Princeton University Press, 2000);
Nick Hanley and Henk Folmer, , Game Theory and the Environment (Edward Elgar, 1999);
Shaun Hargreaves Heap and Yanis Varoufakis, Game Theory: A Critical Introduction (Routledge, 1995);
John Nash, Equilibrium Points in N-Person Games (Proceedings of the National Academy of Sciences, 1950).