John Nash: Playing Nice is Good for Everyone

Next in my mini-series about the great economic thought leaders who were seminal in the development and success of modern outsourcing is one of my favorites, the mathematician John F. Nash, who took economists a step or two beyond Adam Smith with his ideas on Game Theory and Behavioral Economics.

His conclusions are right in the Vested Outsourcing wheelhouse; that is, playing nice and playing cooperatively from the start of a business or contract relationship is good for everyone.

If you’ve seen the movie A Beautiful Mind, which is loosely based on the life of Nash, there’s a brief scene in it that captures in an entertaining nutshell his great breakthrough in the use of games – especially non-cooperative games – as a basis for understanding complicated economic issues.

In the scene Nash, as portrayed by Russell Crowe, has a revelatory moment in a campus bar as he and his mates ponder the best ways to produce optimum results in their approach to and pursuit of a beautiful blonde and her friends.

Nash’s inspiration was that Adam Smith’s principle that the “best result comes from everyone in a group doing what’s best for themselves” was incomplete and needed revision: The best result comes from everyone in a group doing what’s best for themselves and the group.

Whether or not it really played out in exactly that way as shown in the movie, Nash introduced the distinction between cooperative games, in which binding agreements can be made, and non-cooperative games, where binding agreements are not always feasible. He developed an equilibrium concept for non-cooperative games that later came to be called the Nash Equilibrium.

Simply stated, he demonstrated – ahem, by doing the math! – that companies that work together will discover that the sum of the parts can be better when combined effectively than if they work at cross-purposes.

Nash won the Nobel Prize in 1994 for his work and the related work of two others who shared the prize with him that year, John C. Harsanyi and Reinhard Selten. Their work spurred an entire branch of economics that’s now known as Game Theory, or Behavioral Economics.

Game theorists have been studying the economics of playing non-zero sum – or win-win – games for more than 50 years to show that playing nice is indeed good for you. Since Nash’s Nobel Prize – there have been seven more Nobel Prizes awarded to Game Theorists.

Nash’s breakthrough was vital because he showed the value of reaching equilibrium, or win-win solutions and outcomes in difficult scenarios, as the way to achieve successful business and outsourcing partnerships.

And that of course is VO’s foundation: What’s in it for We?

Comments

  1. Don’t forget John Nash merely (OK I couldn’t have done it!) provided the mathmatical proof for the theory put forward by 16th Century Political Philosopher Jean-Jacques Rousseau (Jean Jacques Rousseau “Discourse on the Origin and Basis of Inequality Among Men” (1755)). In this essay he used the analogy of three men going on a stag hunt, by collaborating they get a stag which feeds their families for a week, if one of them gets distracted by a hare which he hunts he only get one meal for his family and the others miss out. A powerful story that is made even more so with John Nash’s mathmatical proof. See my blog “More Discredited Purchasing Strategies” http://adsupplychain.com.au/blog/?p=57 for more discussion on this subject.

    Andrew

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