Page 12 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.79, # 2, 2022, pp. 4-18

It can be said that a consequence is the collection of the behavior of player i and other
−

players. In other words, the consequence a can be expressed as = ( , ) (Shy,
2014).

Nash equilibrium
In 1951, John Nash presented a new concept of equilibrium (previously used by
Cournot in studying bilateral monopoly) which turned into a new concept of
equilibrium and was generally used in game analysis.

Consequence ̂ = ( ̂ , ̂ , … , ̂ ) is called Nash equilibrium (NE) (in respect to any
1

2

i = 1,2, … , N, ̂ ) if the deviation from related consequence is not to the benefit
of any player assuming that other players are not deviated from the played strategy in
Nash consequence. In other words, for any player i, (i-1, 2, … , N), and for all
behaviors , ( ̂ , ̂ ) ≥ ( , ̂ ), if:

−

−

−

−

( ̂ , ̂ ) > ( , ̂ ) for some
{
−

−

( ̂ , ̂ ) = ( , ̂ ) for some
Then this equilibrium is called weak Nash Equilibrium. In sum, equilibrium in the
consequence of dominant behaviors is also Nash equilibrium; however, Nash
equilibrium is not always equilibrium in the dominant behaviors (Souri, 2007).
Finally, it should be said that if game theory seeks to provide a single answer to a
game, that answer should be Nash equilibrium. Therefore, when the players are to
select the strategy in a game without the possibility of negotiation about their choices,
any player should have an opinion on the selection of the opponent/s. Nash
equilibrium will be achieved, first, when each player selects the strategy which yields
most profit, based on his opinion of the choice of other player; and secondly, when
the player's opinion is true, i.e., the other player/ opponent selects the same strategy
as formed in the mind of the first player. The strategies that players choose in this way
constitute their Nash equilibrium strategy (Abdoli, 2007).
GAME MODELING
(It is noteworthy that all equations and functions that are used in this study and all the results are the result
of the authors' work)

Assume that states/countries and investors enter the game simultaneously. The states
prefer, as much as is possible, that there is not an outflow of capital from their borders
and that it be invested within the same economy. On the other hand, the investors are
looking for markets with higher returns or lower risk. Therefore, one of them will
enter a game in the following way:

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