# Nash Equilibrium in Economics: Definition & Examples

Coming up next: Normative Economics: Definition & Examples

### You're on a roll. Keep up the good work!

Replay
Your next lesson will play in 10 seconds
• 0:03 Introduction to the…
• 1:55 The Prisoner's Dilemma
• 3:26 Lesson Summary

Want to watch this again later?

Timeline
Autoplay
Autoplay
Speed

#### Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Wren Hawthorne
The Nash Equilibrium is an important concept in economics, especially in the field of game theory. In this lesson, we will learn about the Nash Equilibrium and follow up with a quiz.

## Introduction to the Nash Equilibrium

You may recognize the name John Nash if you've ever seen the Academy Award-winning 2001 movie A Beautiful Mind. In the film, Nash is portrayed by actor Russell Crow. The film highlights Nash's brilliance in the field of game theory and mathematics and also his battle with schizophrenia.

John Forbes Nash was born on June 13, 1928. He was a professor at Princeton University and received the 1994 Nobel Memorial Prize in Economic Sciences for his work in game theory and particularly the ideas behind the Nash Equilibrium.

In A Beautiful Mind, there is a fictionalized scene that depicts the origins of the Nash Equilibrium. John Nash and several of his fellow Princeton students are in a bar when a beautiful blonde woman walks in with her friends. Nash and his gang want to introduce themselves to her. One of his friends references Adam Smith and elaborates on Smith's concept that with competition the most worthy of them will rise to the top.

At this point in the movie, Nash says that Adam Smith has it wrong, that there is a better solution to the dilemma than just pure competition. He says that if they all approach the blonde, she will turn every one of them down. Then her friends will also turn them down because they wouldn't want to play second fiddle. But if they approach her friends instead (and not the blonde), they will all find a more favorable solution.

Though the movie takes some creative liberties, this scene partially illustrates Nash's concept that would develop into an entirely new thought in economics. His theory says that in a non-cooperative game when there are two or more players and each player knows what choices the other players face, there is a Nash Equilibrium if all players have chosen a strategy and can't benefit by changing their strategy.

## The Prisoner's Dilemma

The best way to demonstrate a Nash equilibrium is through an example called the Prisoner's Dilemma. Let's say that you and an acquaintance, who we'll call Harry, have been picked up for petty theft. The police have the evidence to convict both of you, and you will both serve a jail sentence of 2 years.

To unlock this lesson you must be a Study.com Member.

### Register to view this lesson

Are you a student or a teacher?

#### See for yourself why 30 million people use Study.com

##### Become a Study.com member and start learning now.
Back
What teachers are saying about Study.com

### Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.