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How Nash Equilibrium Changed Economics


He has been universally hailed as one of the most important economic thinkers of the past century, and found even more fame after he was portrayed in the Oscar-winning movie.
A beautiful mind John Nash, a Us mathematician who came up with the so-called Nash equilibrium and put game theory at the heart of economics, has died at the age of 86 but his work will continue to influence social sciences for years to come.

So, what is the Nash Equilibrium and why does it still matter?

Imagine there are two Companies Game Inc and Fun Co, have to choose whether to advertise or not they are both well-known. So if they choose not to advertise it was still both make hefty profits say hundred-million dollar, however if I am company pays to advertise while the other goes head many customers would stop buying its product flocking to the other for. It is profits will fall to fifty million dollar while the others will jump to a hundred and forty million dollars, Which accounts for ten million dollars in advertising spending.

The same, will happen the other way around?

Conversely where both companies to advertise their profits would be a little lower ninety million dollars, so will the company’s do? If Game Inc chooses not to advertise the best thing Fun Co can do is to advertise. As you would make more profits the same is true the other way around, if Game Inc chooses to advertise the result back to for fun course one ish it is marketing department and vice versa.

In the ideal word need the company would advertise as they would both be better off by staying put percentage firm fears that the other might advertise, we both do it securing slightly lower profits. No company has anything to gain from changing its strategy you need a lot, this is the Nash equilibrium of this game.

The application of the Nash equilibrium, goes beyond the decisions by marketing departments. Governments which decide whether or not to stop nuclear arsenals or greece and the rest of the euro zone. When they decide whether or not to strike a deal, the influence of John Nash, still pervades strategic thinking everywhere.

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