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The Bones of Rational Actors and the Nash Equilibrium

This article starts off by being weary of the notion that Iran is a “rational actor”. The western Asian country is characterized as a dying one whose rational interests stem from desperate gambles. Rational actors lie deep beneath Western history, from the likes of Napoleon, the Confederates during the Civil War, and the Germans during World War 2. Interestingly, their common flaw was that their rationality resulted in catastrophic events.

Now, the subject proceeds to Nash equilibrium, which is looked upon in a negative context. John Nash’s famous finding is defined as the following: In a multi-player game in which everyone knows everyone else’s intentions, individual players may come to terms with a less than optimal outcome. What follows is a pertinent example: Why do businesses that sell the same product work in the same block, instead of working separately in more profitable regions? The answer is as follows: Each business fears that if all businesses worked separately, then certain businesses would be ignored and not make any profit. Therefore, in the context of this problem, each business accepts a lesser profit to prevent the occurrence of an even worse outcome.

An example of a dark result of Nash equilibrium is extinction. Hypothetically, say that you are a member of a hunting tribe that lives by killing mastodons. If competing tribes slay more mastodons than yours, then your tribe will be wiped out eventually. Rationally, all of the tribes will try to kill the most mastodons as possible. As a result, mastodons will become extinct and so will your and all other tribes due to starvation. This situation proves that Nash equilibrium, or a rational course of action, can lead to a disaster.

Other examples of “dark” Nash equilibrium, such as World War I and the Peloponnesian War, are discussed. For example, each participating country of World War I had a conflict, such as control over weaker countries, possession of land, and balance of power. Although war was their second choice, everyone chose to go to war in the end, which again illustrates the point that Nash equilibrium may result in everyone choosing a less than optimal outcome.

Overall, this article is highly relevant to the topics of game theory and Nash equilibrium that was covered in the course. However, it sheds new light on the subject, by showing that Nash equilibrium can ironically lead to an outcome that is less than optimal, or even worse, an outcome with extreme consequences, such as the extinction of a tribe. In addition, few applications of Nash equilibrium and how they operate as games are discussed. It should be emphasized that the content of Nash equilibrium in this article is not the general norm; we accept the notion of Nash equilibrium that results in the best outcome for everyone.

 

Source: http://atimes.com/2015/07/the-bones-of-rational-actors-and-the-nash-equilibrium/

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