Game theory is one of the most exciting fields in modern Economics. Yesterday, we started the lecture on Game theory by watching a clip from the Oscar-winning A Beautiful Mind. In the scene, Russell Crowe’s Nash proves that the First Welfare Theorem of Economics does not always hold, and there are circumstances when competition does not lead to a Pareto efficient outcome.
‘Adam Smith is wrong,’ proclaims Nash after deducing that if everyone competes for the attention of the blonde girl, no one will end up with that girl. The ‘invisible hand’ does not work in this situation. So, he advised his friends to go for the brunettes. This result is not, however, one of the Nash equilibria, which predict that one guy will eventually end up with the blonde, while the others will be with the brunettes.
This example shows the power of Economics, and how simple ideas can affect our lives in every single way, be it politics or love. This is why studying Economics is so interesting, and at the same time, so useful for you.