The Bayesian Nash equilibrium is a concept in game theory that extends the traditional Nash equilibrium to settings where players have incomplete information about the other players' types (e.g., their preferences or available strategies). In a Bayesian game, each player has a belief about the types of the other players, typically represented by a probability distribution. A strategy profile is considered a Bayesian Nash equilibrium if no player can gain by unilaterally changing their strategy, given their beliefs about the other players' types and their strategies.
Mathematically, a strategy for player is part of a Bayesian Nash equilibrium if for all types of player :
where is the utility function for player , represents the strategies of all other players, and is the strategy set for player . This equilibrium concept is crucial in situations such as auctions or negotiations, where players must make decisions based on their beliefs about others, rather than complete knowledge.
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