Nash Versus Evolutionary Equilibria and the Folk Theorem
AbstractNash Versus Evolutionary Equilibria and the Folk Theorem Due to the space limitation imposed on this response, I will address what I consider to be the most important issue raised by Banks and then take up one of the secondary issues raised. I agree with Banks that the particular weaknesses which I attributed to folk theorems are more fundamentally problems of the Nash equilibrium concept and hence weaknesses of game theory more generally. However, a rejection of the Nash equilibrium concept does not leave us vulnerable to the "wing walker" theorem, that a flawed theory is better than none. Several alternatives to the Nash equilibrium have been proposed. For example, evolutionarily stable strategies (Axelrod 1984; Maynard-Smith 1982), rationalizability (Pearce 1984; Bernheim 1984), and correlated equilibrium (Aumann 1987) are alternatives put forward, in part, as responses to per- ceived weaknesses in the Nash concept. The original version of my article included a discussion (cut for space reasons) of Axelrod's 1982 and 1986 studies of the free rider problem. I argued in the excised section that Axelrod's approach did overcome the limitations which I identified as inherent in the folk theorem (and by implication, in the concept of Nash equilibrium).