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Nash’s interpretations of equilibrium: Solving the objections to Cournot

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  • Jorge M. Streb

Abstract

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.

Suggested Citation

  • Jorge M. Streb, 2015. "Nash’s interpretations of equilibrium: Solving the objections to Cournot," CEMA Working Papers: Serie Documentos de Trabajo. 575, Universidad del CEMA.
    • Handle: RePEc:cem:doctra:575
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    References listed on IDEAS

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    7. Martin Shubik, 1952. "Information, Theories of Competition, and the Theory of Games," Journal of Political Economy, University of Chicago Press, vol. 60(2), pages 145-145.
    8. 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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    More about this item

    Keywords

    equilibrium; rational players; consistent beliefs; adaptive expectations; rational expectations;
    All these keywords.

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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