Commentary: Nash equilibrium and mechanism design

Abstract

A Nash equilibrium (called an “equilibrium point” by John Nash himself; see Nash 1950) of a game occurs when each player chooses a strategy from which unilateral deviations do not pay. The concept of Nash equilibrium is far and away Nash’s most important legacy to economics and the other behavioral sciences. This is because it remains the central solution concept—i.e., prediction of behavior—in applications of game theory to these fields. As I shall review below, Nash equilibrium has some important shortcomings, both theoretical and practical. I will argue, however, that these drawbacks are far less troublesome in problems of mechanism design than in many other applications of game theory.