A beautiful messJohn Nash, the American mathematician known to the wider public thanks to his portrayal in the Academy Award-winning 2001 blockbuster “A Beautiful Mind,” died with his wife in a car accident last week. He was 86. His wife was 82. The couple was returning home after Nash had accepted the Abel Prize, a prestigious award for math, which he had a lifelong passion for. He had won the Nobel Prize in economics in 1994. In a life of steep peaks and deep valleys, he went out on a peak. His demise in a taxi was even more dramatic than the movie about his life.
While Nash considered himself a mathematician, he left a gigantic footprint on economic sciences for his work in developing game theory, which revolutionized the way of doing business, trade and even public policies ranging from monetary to environmental decision-making.
Nobel Economics laureate Roger Myerson referred to Nash’s work as having “had a fundamental and pervasive impact on economics and the social sciences which is comparable to that of the discovery of the DNA double helix in the biological sciences.”
His theory dubbed “the Nash equilibrium,” which can offer a solution in a non-cooperative or rival situation involving two or more players, has generated numerous applications in the study of conflicts, consumer behavior, coordination and legislation procedures and produced a number of applied theories like the “Chicken Game,” the “Meerkat Survival” and the “Prisoner’s Dilemma.”
It is not clear exactly where game theory originated. Some say it goes back as far as the ancient days of the Talmud, the compilation of ancient law and tradition set down during the first to fifth centuries A.D., which served as the basis for the Jewish religious, criminal and civil laws. There is a bankruptcy case in the ancient book in which an estate is divided by creditors when there are no sufficient funds to repay them. The famous biblical story of the wisdom of King Solomon can also be considered an example of game theory. Solomon tells two women who both claim a child to split him in half. The woman who refuses is deemed the true mother by Solomon.
The Nash equilibrium can be applied to situations in which everybody does the best they can, given whatever choices they have and assuming no one can benefit from changing strategies or decisions while other players keep theirs unchanged. The logic is that the equilibrium choice is optimal, not the best, considering all other strategies and options. Instead of a zero-sum solution, in which only one person can win, the solution aims to generate a less-desired outcome that is win-win for all parties.
Economist Robert Weber observed that “the Nash equilibrium tells us what we might expect to see in a world where no one does anything wrong.” The wisdom can solve not only economic situations but political and diplomatic conundrums.
We can apply the equilibrium principle to a political hot potato: the reform of the civil service pension system, which is currently being negotiated. The ruling party has accepted the opposition’s demand to work toward raising the national pension scheme payout ratio to 50 percent of the previous salary from the current 40 percent in return for passing the civil servants pension reform bill. The opposition agreed that the work would come after further study on the national pension program. It was the best possible agreement for the two parties under the pressure to pass the bill. So far they have worked under the Nash equilibrium principle.
Then the opposition broke away from the equilibrium. It suddenly came up with another condition to approve the bill. It wants the health minister to resign and revise the Special Act on Sewol Ferry crisis. It threatened to boycott the vote if its conditions are not met. It wants a higher price for its agreement to suspend the immediate revision of the coverage ratio in the broader pension policy.
But the main opposition party has been asking too much from the beginning. It suddenly came up with the figure of 50 percent for the national pension coverage ratio while working on the civil servants pension reforms. The new demand was not entirely thrown out because what was imperative was to fix the deficit-ridden civil servants pension system. The equilibrium was sustained not because of the main opposition party but because people offered to understand. The opposition, however, should not push it further. Turning the civil servants pension reform discussion into a political bargaining tool could backfire on its face.
The main opposition party will be entering an entirely new and hostile environment in a game of chicken. During the Cuban missile crisis, U.S. President John F. Kennedy demanded Soviet leader Nikita Khrushchev withdraw missiles from Cuba with his finger kept on the red button that could fire nuclear missiles. He did that for 13 days. Does the opposition want to go ahead with such a high-stakes game? Economist Thomas Schelling advised that there could not be absolutely best choices. The consequences depend on what choices the other party makes. It should not take a genius like Nash to figure out a simple bargain and life’s problem-solving principles.
JoongAng Ilbo, May 28, Page 34
*The author is an editorial writer of the JoongAng Ilbo.
by Yi Jung-jae