Computation of Efficient Nash Equilibria for Experimental Economic Games

Abstract

Nash equilibrium is the central solution concept with diverse applications for most games in game theory. For games with multiple equilibria, different equilibria can have different rewards for the players thus causing a challenge on their choice of strategies. This paper described and carried out an experiment on a game that was modelled as a three-player experimental economic game. The results were recorded and by the best response sets method we identified all the Pure Nash equilibria  and computed the most efficient Nash equilibrium for the modelled game. Using the Brauwer's fixed point theorem we verified the existence of mixed Nash equilibrium in the game.  An individual whose aim was to minimize risks played the risk dominant strategies whereas those aiming to maximize their profits, the payoff dominant strategies were played to achieve their most efficient Nash equilibrium. The computation of most efficient Nash Equilibrium in games can be applied to most situations in competitive Economic environment that are faced with multiple choices on which strategy is optimal.

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