Lecture 5 - Nash Equilibrium: Bad Fashion and Bank Runs

We first define formally the new concept from last time: Nash
equilibrium. Then we discuss why we might be interested in Nash
equilibrium and how we might find Nash equilibrium in various
games. As an example, we play a class investment game to illustrate
that there can be many equilibria in social settings, and that
societies can fail to coordinate at all or may coordinate on a bad
equilibrium. We argue that coordination problems are common in the
real world. Finally, we discuss why in such coordination
problems–unlike in prisoners’ dilemmas–simply communicating may be
a remedy.