Nash’s interpretations of equilibrium: Solving the objections to Cournot
A Nash equilibrium can also be seen as a Cournot-Nash equilibrium, though this is debated because Cournot provided a specific application, not a general formulation. In my view, another of Nash’s fundamental contributions stands out when contrasting him to Cournot. Cournot treated economic decisions as optimization problems, but his stability analysis of duopoly led to endless discussions because players did not use the available information. Nash solves this with his rational interpretation: when players know the structure of the game, they can use the solution to predict the equilibrium. He thus introduces rational expectations. Nash additionally offers an adaptive interpretation: when players do not know the structure of the game, they can adjust their strategies to maximize payoffs. These adaptive expectations were anticipated by Cournot in his analysis of monopoly. In brief, Nash was not only extraordinary as a mathematician; his deep insights allow solving decades-long debates in economics.
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- Robert J. Leonard, 1992. "Reading Cournot, Reading Nash / or / The Emergence and Stabilization of the Nash equilibrium," Cahiers de recherche du Département des sciences économiques, UQAM 9214, Université du Québec à Montréal, Département des sciences économiques.
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- Till Düppe & E. Roy Weintraub, 2014. "Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit," Economics Books, Princeton University Press, edition 1, number 10206.
- Nicola Giocoli, 2003. "Modeling Rational Agents," Books, Edward Elgar Publishing, number 2585, June.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Martin Shubik, 1952. "Information, Theories of Competition, and the Theory of Games," Journal of Political Economy, University of Chicago Press, vol. 60, pages 145.
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- Leonard, Robert J, 1994. "Reading Cournot, Reading Nash: The Creation and Stabilisation of the Nash Equilibrium," Economic Journal, Royal Economic Society, vol. 104(424), pages 492-511, May.
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