WHAT IS THE UTILITY OF
NASH
EQUILIBRIUM
IN ORGANIZATIONAL DECISION MAKING?
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MEANING
Nash Equilibrium is a game theory
concept where in a multiplayer
strategy game, no one player will
gain any benefit by changing their
strategy while other players keep
theirs unchanged. This implies
that current strategies and the
resulting payoffs are in
equilibrium.
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At the outset, Game theory tries
to look at how individuals (or a
collection of individuals) make
choices that will, in turn, affect
others' choices.
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Nash Equilibrium refers to a
condition in which each individual
makes an optimized outcome
based on the expected decisions
of others.
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A FEW GAME THEORY
STRATEGIES / SCENARIOS:
1. Matching Pennies: This game has
two players, A & B, who
simultaneously place a coin on
the table. The result depends on
if the coins match. If both coins
have heads (or tails), A wins and
keeps B's coin. If the heads/ tails
don't match, B wins and keeps A's
coin.
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2. Dictator Game: In this simple
game, say with two players, A and
B, A should decide how he would
split a high cash prize with B, who
has no input in A's decision. This
may not be a game theory
strategy, but it provides good
insights into people's behaviour
and responses.
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3. Traveller's Dilemma: In this
game, a travelling company (say,
an airline) agrees to compensate
two passengers with identical
damages. The two passengers are
separately asked to evaluate the
damages with a minimum of Rs. 5
and a maximum of Rs. 150.
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If both estimate the same value, the
travelling company will give each of
them that amount as reimbursement.
However, suppose the estimates and
values differ. In that case, the
company will pay the lower estimate
with a small bonus of Rs. 5 to the
passenger who wrote this lower
estimate and a penal fine of Rs. 5 for
the passenger who wrote the higher
estimate.
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Organizations can benefit greatly
from using these concepts, among
others, individually or in
combination.
The Nash Equilibrium has many
applications in evolutionary
biology, politics, International
Relations, economics, etc.
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