John Nash: The Shakespeare of economicshttps://indianexpress.com/article/opinion/columns/the-shakespeare-of-economics/

John Nash: The Shakespeare of economics

In terms of influence on modern economics and game theory, John Nash has few peers.

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John Nash’s work provided foundations for analysing both cooperative and non-cooperative interactions among rational agents in economic and political settings.

On May 23, as my wife and I drove back to Washington after a weekend in Orange, Virginia, visiting James Madison’s home and the birthplace of the American constitution, our daughter called to give us the news that John Nash and his wife, Alicia, had just been killed in a car accident. It was difficult to fathom. How could a person of such genius, after a life of so much struggle, battling schizophrenia and overcoming it, go in such a banal way?

The news of his death brought back memories of my first meeting with Nash. In 1989, I was a visiting professor at Princeton. By then Nash’s schizophrenia was in remission. He could be seen strolling around the Princeton lawns for hours on end. For the residents of Princeton, this was part of the fixture, and so barely noticed. For me and Jorgen Weibull, also a visiting professor, it felt strange. There we were in classrooms analysing or applying the “Nash equilibrium” and the “Nash bargaining solution”, and the man after whom these concepts were named was out there, pacing the yard, immersed in his own world.

It was through Jorgen’s painstaking efforts that we managed to get Nash to join us for lunch in the university cafeteria. It was exciting to be with a person who was known for his genius, even though he spoke little and, every now and then, seemed to drift off into his own thoughts.

The two vivid memories that stand out for me from that remarkable afternoon were, first, his answer to my question about the origin of his name. He said it came from the Sanskrit nasika, meaning nose.

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The second was the reaction of Abhijit Banerjee, as he, seeing Jorgen and me, came and joined us at the table, and was introduced to Nash. It was like a young literature student joining friends for lunch and being told that the third person at the table was Shakespeare.

In terms of influence on modern economics and game theory, Nash has few peers. His work provided foundations for analysing both cooperative and non-cooperative interactions among rational agents in economic and political settings.

In addition, he made contributions to various branches of pure mathematics, including differential geometry and isometric embeddability of abstract Riemannian manifolds (whatever that may mean), with implications for not just economics, but computer science and evolutionary biology.

This is remarkable given the brevity of his creative life. His most important papers were written before he was 25, and his creative period was over by the time he was in his late 20s, felled by schizophrenia.

By the age of 30 he had to be confined to a mental hospital. The next 30 years were a battle with paranoia, voices in the head and delusions.

Nash was born on June 13, 1928, in Bluefield, West Virginia. He was recognised early on as a prodigy; he got his PhD in mathematics from Princeton at the age of 22. His PhD thesis was as short as his productive life — 28 pages. One of his most celebrated papers that lays out the conditions under which we can be sure of the existence of a non-cooperative equilibrium in games is just one page and a few lines.

The entire paper was reprinted on a t-shirt designed by graduate students in the economics department at Cornell University in the late 1990s.

Of Nash’s many contributions, the one that got maximum play is the “Nash equilibrium”, which is used to understand the behaviour of oligopolistic firms, movements in financial markets, political rivalry and strategising in conflict, such as during the Cuban Missile Crisis.

The basic idea of a Nash equilibrium is simple. Consider a group of agents, each of whom has to choose an action or strategy. The payoff or utility that each person gets depends not just on that person’s choice but on what other agents choose. To take a stark case, you and the oncoming car each can choose which side of the road to drive on.

Your wellbeing depends on your choice and also the other driver’s. A Nash equilibrium is a choice of action on the part of each person such that no one can do better by unilaterally deviating to some other action.

In economics, we know that (under some assumptions) a competitive equilibrium takes society to an optimal outcome. Each individual, acting in his or her self-interest, takes society to an optimum. This was the broad idea that led to the orthodoxy of the invisible hand in economics. The Nash equilibrium gained so much currency because it challenged this central idea by illustrating how perfect individual rationality can lead a group to a collectively bad outcome. We can see this in the area of CO2 emissions, the provision of public goods and problems related to the commons.

Here is a simple game theory puzzle for the reader that illustrates this. Two players are told to each choose an integer from 2 to 100. If both choose the same integer, they are told they will get that number in dollars.

But if they choose different numbers, they get the lower of the two numbers with a small adjustment: The person who chose the smaller number gets an additional $2, and the person who chose the higher number has $2 deducted. The question for the reader is this: What choice of numbers by the two players constitutes a Nash equilibrium? This has a unique answer. Try to figure out the answer at leisure.

The next time I met Nash was after he had become a worldwide celebrity. He had won the Nobel Prize, sharing it with John Harsanyi and Reinhard Selten, in 1994, and was the subject of a popular Hollywood film, A Beautiful Mind, in which Russell Crowe acted his part. He was part of a conference in Mumbai in January 2003 that brought several prominent economic theorists to town, including Robert Aumann, Roger Myerson and Amartya Sen. The audience for Nash was large, with some recognisable faces from Bollywood, who may have come expecting to see Crowe. The talk was disappointing, as Nash tried to address some practical policy questions. He was too much of a hedgehog, in the sense of Isaiah Berlin, and so was good at focusing on one thing very deeply, and too unlike the fox to be able to range over many topics, even superficially.

The next day, much to my surprise, as I prepared to give my talk, Nash came and sat in the front row. I was thrilled by his presence — for the full five minutes that he was awake.

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The writer is senior vice president and chief economist, the World Bank. Views are personal.

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