Nash Equilibrium and Financial Problems within Relationships and Beyond
In This One Simple Tool Could Save Your Relationship, Chris Wilson talks about how the theory of Nash Equilibrium can be applied to facilitate romantic fights that result from finances. In mid-20th century, John Nash came up with an equation related to the theory of Nash Equilibrium that allows two individuals to optimally bargain in his paper The Bargaining Problem. This equation is applied to solve relationship problems rooting from differences in financial standpoint of a couple by assessing the happiness each individual would get from either getting what they want or not getting what they want, with the happiness scale being from one to ten. The result of this equation would be the amount each individual would get out of the total collective amount that has to be split between the couple.
Figure 1: Interactive tool that utilises Nash’s formula mentioned in The Bargaining Problem, visualising how it would help solve relationship problems considering the happiness scores of each individual for each of the outcome
In Figure 1, because both parties in the relationship claim to have the same level of happiness for getting the money for their individual purposes and that for not getting the money for their individual purposes, they would just split the total amount waiting to be split between the two.
In short, Nash’s formula is helping with finding the best response for each of the parties in the relationship that “attends to both a person’s investment in getting their way and their willingness to walk away if they don’t,” and the outcome that results from such best responses. Because money is a critical part in our lives, this Nash Equilibrium calculation is applicable beyond the scope of a dating scene. It could be used not only between “adversaries that need to divvy up” as the article mentions, but also between family members, friends, and companies making a contract; it could be applicable to any sort of dividing problems that occur in any type of relationship. This article raises an insight into how Nash Equilibrium is more than just a concept learned in class, and how it could be very much integrated into the everyday life to decrease the unnecessary conflicts related to splitting anything that may arise between different parties.