MIXED-STRATEGY NASH EQUILIBRIUM BASED UPON EXPECTED UTILITY AND QUADRATIC UTILITY

The notion of a mixed-strategy Nash equilibrium suffers from three inherent difficulties. First, given the equilibrium strategies of other players, there are many best replies. Second, the equilibrium is unstable. Third, comparative statics results are counterintuitive. We demonstrate that these difficulties an have their origin in von Neumann and Morgenstern's expected utility. In contrast, players with ''quadratic utility'' have unique best replies and the Nash equilibrium appears to yield intuitive comparative statics results. Journal of Economic Literature Classification Number: C72. (C) 1995 Academic Press, Inc.