A Beautiful Mind

If we all go for the blonde and block each other, not a single one of us is going to get her. So then we go for her friends, but they will all give us the cold shoulder because no on likes to be second choice. But what if none of us goes for the blonde? We won't get in each other's way and we won't insult the other girls. It's the only way to win. It's the only way we all get laid (c) John Nash, from a film "A Beautiful Mind".

John Forbes Nash, Jr. (born June 13, 1928), is an American mathematician and economist whose works in game theory, differential geometry, and partial differential equations provided insight into the forces that govern chance and events inside complex systems in daily life. His theories are still used today in market economics, computing, accounting and military theory. Serving as a Senior Research Mathematician at Princeton University during the later part of his life, he shared the 1994 Nobel Memorial Prize in Economic Sciences with game theorists Reinhard Selten and John Harsanyi.

In game theory, Nash equilibrium is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium.

The Nash equillibrium concept can be applied in economics.Economists have long used game theory to analyze a wide array of economic phenomena, including auctions, bargaining, duopolies, fair division, oligopolies, social network formation, and voting systems. This research usually focuses on particular sets of strategies known as equilibria in games. These "solution concepts" are usually based on what is required by norms of rationality. In non-cooperative games, the most famous of these is the Nash equilibrium. A set of strategies is a Nash equilibrium if each represents a best response to the other strategies. So, if all the players are playing the strategies in a Nash equilibrium, they have no unilateral incentive to deviate, since their strategy is the best they can do given what others are doing.

So, to keep it simple, the game theory (on which the Nash equillibrum concept is based on) is an analysis of optimal decision in competitive situations. John Nash proposed that the optimal decision would not be the best decision for one person, but a decision based on predicting decisions of others as well and taking them into account. This concept is widely used in many spheres of life, including economics and business. Many companies are planning their strategies, using the Nash equillibrium concept.

Source:
Wikipedia