RE: Nash equilibrium's relevance

["Davies, Daniel" <daniel.davies@xxxxxxxxxxxx>]

>If so, why is Nash's equilibrium used for all sorts of things, such as
>electricity regulation? (If I remember, the movie mentioned that.) Is it
>that Nash equilibrium is basically a normative concept and that it's
applied
>to improve the efficiency of electricity regulation (or what not) rather
>than to be an accurate description of the way the world works?

In a nutshell, the answer to this is the reason why Nash's Nobel prize was
shared with Harsanyi and Selten.  They built on Nash's concept and developed
the theory of what happens in game-like interactions under less restrictive
assumptions about maximal, universal, recursive rationality.  When you allow
for certain kinds of departures from rationality, it's actually quite a good
descriptive tool.  Particularly given that the whole thing in its
application to electricity regulation has an element of the circle jerk to
it; the regulators employ game theorists to design the regulations, and the
companies know this, so they hire their own game theorists to exploit the
loopholes, which means that the regulators know that the companies are
likely to act in accordance with game theory, so they try to design
"incentive-compatible regulations" ... and so on.

dd


___________________________________________________
Email Disclaimer

This communication is for the attention of the
named recipient only and should not be passed
on to any other person. Information relating to
any company or security, is for information
purposes only and should not be interpreted as
a solicitation or offer to buy or sell any security.
The information on which this communication is based
has been obtained from sources we believe to be reliable,
but we do not guarantee its accuracy or completeness.
All expressions of opinion are subject to change
without notice.  All e-mail messages, and associated attachments,
are subject to interception and monitoring for lawful business purposes.
___________________________________________________