Outcome (game theory)

In game theory, an outcome is a situation which results from a combination of player's strategies. Every combination of strategies (one for each player) is an outcome of the game. A primary purpose of game theory is to determine which outcomes are stable according to a solution concept (e.g. Nash equilibria).[1]

In a game where chance or a random event is involved, the outcome is not known from only the set of strategies, but is only realized when the random event(s) are realized.

A set of payoffs can be considered a set of N-tuples, where N is the number of players in the game, and the cardinality of the set is equal to the total number of possible outcomes when the strategies of the players are varied. The payoff set can thus be partially ordered, where the partial ordering comes from the value of each entry in the N-tuple. How players interact to allocate the payoffs among themselves is a fundamental aspect of economics.

Choosing among outcomes

Many different concepts exist to express how players might interact. An optimal interaction may be one in which no player's payoff can be made greater, without making any other player's payoff lesser. Such a payoff is described as Pareto efficient, and the set of such payoffs is called the Pareto frontier.

Many economists study the ways in which payoffs are in some sort of economic equilibrium. One example of such an equilibrium is the Nash equilibrium, where each player plays a strategy such that their payoff is maximized given the strategy of the other players.

Applications

Equilibria are not always Pareto efficient, and a number of game theorists design ways to enforce Pareto efficient play, or play that satisfies some other sort of social optimality. The theory of this is called implementation theory. Other economists seek to design games based on a certain set of outcomes, an effort which goes under the name of mechanism design.

References

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