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Nash Equilibrium and the Real World

Prof. John Nash, one of the intellectual parents behind game theory died with his wife in a car accident on the night of 23rd May 2015. Tragically, his death occurred after returning from Norway where he received the Abel Prize, the equivalent of the Nobel Prize in mathematics (fun fact: there is no Nobel Prize for mathematics). He also has a Nobel Prize in Economics. It was for his work in game theory that won him this award, specifically in defining what is now called a ‘Nash Equilibrium’.

Game theory existed before John Nash, but the only equivalent equilibrium concept was the MinMax theorem formulated by John von Neumann (another fun fact: apparently he inspired the mad scientist character in the movie Dr Strangelove). Unlike the MinMax concept, the Nash Equilibrium was a broader solution concept that could be applied outside of zero sum games. For me, what inspired me to study game theory was that it could help explain why we live in an imperfect world. Without the Nash Equilibrium, game theory and economics wouldn’t have the power it has today. We would all believe that somehow we can’t do better than competitive markets. Well, game theory and specifically using the Nash Equilibrium concept allows us to look at the choices that face people, firms, politicians and see whether or not we could have done better. In this article, I want to examine some specific cases that we can all observe. But first, what is the Nash Equilibrium?


Is Australia’s Health System Financially-Sustainable?


One of the great social policy achievements of Australian governments was to establish a health system that is able to deliver world best health outcomes at relatively modest cost to almost all Australians. According to the Organisation of Economic Cooperation and Development (OECD), Australian life expectancy is the 6th highest in the OECD at 82 years at birth in 2014. This cost Australians the relatively modest amount of 9.1% of GDP (21st highest in the OECD), which compares favourably to the OECD average of 9.3% in 2012. As impressive as this success is, is it financially sustainable? Can Australia continue to achieve these impressive health outcomes for a relatively modest amount? Or will Australia’s demographics and emerging health challenges force Australians to spend more of their tax and income on the health system?


Why More Roads Will Not Reduce Congestion



I remembered in the good old days when it was a breeze getting around Melbourne, assuming you were driven (by my parents, not a chauffeur). Now, that I often travel by car for meetings, I notice how some of my favourite short cuts are no longer the fail-safe ways of cutting travel time. Even driving in the middle of the day could test the patience of a saint. We are lead to believe that more roads will reduce congestion. But the facts will tell you otherwise.