John Nash’s contributions to Game Theory opened the door to modern economic theory, helping us understand issues from the Cold War to how to promote efficiency in markets and deter crime, say Carlos Pimienta and Gabriele Gratton.
OPINION: “John Nash’s contributions to Game Theory opened the door to modern economic theory," says Carlos Pimienta from the UNSW Business School. “Game theory provides a structured way to study strategic interactions and we can use it to understand business strategy, contracts, auctions, voting systems, crime, bargaining, and virtually any social interaction you can think of."
John Nash died in a car accident in New Jersey over the weekend. The story of his life was developed into the Oscar-winning film ‘A Beautiful Mind’.
“John Nash taught us how to solve those interactions by formally defining 'equilibrium points', what we call now Nash equilibria. A Nash equilibrium is a description of behaviour for every agent involved in the situation we want to analyse, and it has the property that each agent is doing only what is individually best for them," Pimienta says.
"The complication is that this is a circular problem, what is best for me depends on what you do and what is best for you depends on what I do. Nash resolved this by proving that, under some mild conditions, those strategic interactions always have at least one Nash equilibrium."
Carlos Pimienta is a Senior Lecturer at the UNSW Business School where he has published research studying properties of Nash equilibria and other equilibrium concepts.
"Attempts to explain some social interaction in economics consist of formalising the situation, finding its Nash equilibrium, and then use it to understand real-life behaviour. That's why John Nash's work is so fundamental to Economics."
Gabriele Gratton, also from the UNSW Business School, says it was Nash’s work in early 1950s that made game theory the standard way we think of strategy today.
“The problem to solve seems impossible: my choice of action depends on what I think you will do, which depends on what you think I will do, and so on. But Nash showed that there is always a solution: the Nash equilibrium. In essence, a Nash Equilibrium tells each player to follow a certain plan, and, if I expect you to follow your plan, then I have no incentive to do anything different than my own plan.”
A Lecturer in the School of Economics, Gratton teaches ‘Game Theory and Business Strategy’. He says Nash’s work has been applied to almost everything.
“It helped us understand the military and diplomatic strategies of the cold war, how to promote efficiency in markets and deter crime. It is extensively used by economists, political scientists, and evolutionary biologists alike. It recently proved very useful in designing policies to help patients in need of a kidney to find a suitable donor, saving perhaps hundreds of thousands of lives.”
“John Nash’s name comes up all the time in economic research as well as in the classroom,” says Gabriele Gratton from the UNSW Business School. “And not only with the Nash Equilibrium. There is Nash Bargaining too, and this is just his contribution to economics.”
Economist and mathematician John Nash died last night in a car accident in the United States. His life inspired the Oscar-winning film ‘A Beautiful Mind’.
Gabriele Gratton is a Lecturer in the School of Economics at the UNSW Business School, where he teaches the course ECON2112 ‘Game Theory and Business Strategy’.
“Game Theory is the formal analysis of strategic interactions: each person can take one of many actions, the outcome of which depends also on the actions taken by other persons,” he says.
It was Nash’s work in early 1950’s that made game theory the standard way we think of strategy today.
“The problem to solve seems impossible: my choice of action depends on what I think you will do, which depends on what you think I will do, and so on. But Nash showed that there is always a solution: the Nash equilibrium. In essence, a Nash Equilibrium tells each player to follow a certain plan, and, if I expect you to follow your plan, then I have no incentive to do anything different than my own plan.”
He says Nash’s work has been applied to almost anything.
“It helped us understand the military and diplomatic strategies of the cold war, how to promote efficiency in markets and deter crime. It is extensively used by economists, political scientists, and evolutionary biologists alike. It recently proved very useful in designing policies to help patients in need of a kidney to find a suitable donor, saving perhaps hundreds of thousands of lives.”
For further details call Gabriele Gratton on 02 9385 4615 or Email g.gratton@unsw.edu.au
- See more at: https://www.business.unsw.edu.au/news-events/news/john-nashs-work-on-gam...