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What makes the dollar strong?

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John Nash’s ‘beautiful’ contribution to economics

Tim Fitzsimons May 25, 2015
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John Nash, who died with his wife, Alicia, in a car crash Saturday at 86, was a mathematician, not an economist. 

But the phenomenon he described — known as Nash’s Equilibrium — revolutionized the world of economics and game theory.

Around the end of World War II, game theory was gaining steam in academic circles, says Dale Jorgenson, a professor of economics at Harvard University. “But there really wasn’t much evidence that this was having much effect on the way people thought about strategic situations,” Jorgenson says. 

Before Nash came along, game theory was about zero-sum games: one party wins, one party loses. Nash provided a mathematical way of understanding games that more closely resemble the real world, where we don’t necessarily have clear winners and losers. 

“When [people] look back at the Nash Equilibrium they think, ‘Oh my God, this is so simple, it’s amazing that it was so groundbreaking because it seems so obvious,’ ” says Alex Bellos, author of “Alex’s Adventures in Numberland.” “And it seems so obvious because it’s just become part of culture.”

Today, game theory is used to describe myriad social phenomena, including those in business and politics. Bellos says every time someone says “zero-sum game,” they owe a little credit to Nash. 

When Roger Myerson, a professor of economics at the University of Chicago, was starting his academic career in the 1970s, Nash’s work was maturing. Even so, Nash had withdrawn from public life as he battled paranoid schizophrenia. 

“At that time I knew he was alive, but there was no hope we could ever meet him,” Myerson says. 

Myerson says while Nash was out of the public eye, his work revolutionized the field of economics. 

“It’s moved economics from a focus on resource allocation to a focus on understanding how behavior responds to incentives,” Myerson says.

After Nash reentered public life in the 1980s, he was famous. In 1994, he won a Nobel Prize, and in 2001, his life story was fictionalized for the film “A Beautiful Mind.”

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