A Method to Select Best Among Multi-Nash Equilibria

Abstract

A non-zero sum bimatrix game may yield numerous Nash equilibrium solutions while solving the game. The selection of a good Nash equilibrium from among the many options poses a dilemma. In this article, three methods have been proposed to select a good Nash equilibrium. The first approach identifies the most payoff-dominant Nash equilibrium, while the second method selects the most risk-dominant Nash equilibrium. The third method combines risk dominance and payoff dominance by giving due weights to the two criteria. A sensitivity analysis is performed by changing the relative weights of criteria to check its effect on the ranks of the multiple Nash equilibria, infusing more confidence in deciding the best Nash equilibrium. JEL Codes: C7, C72, D81