My older son’s college psychology class was recently assigned the film A Beautiful Mind, about the Nobel Prize winning economist and schizophrenia sufferer John Nash. The assignment was to watch the film, dig into Nash’s biography, and report on how the film altered Nash’s story of mental breakdown and recovery.
We watched the film together as a family (my second viewing), checked out the biography by Sylvia Nasar from a local library, and generally geeked out on Nash and game theory at the family dinner table over the next few days.
An additional motivation for the interest was that my mom’s engineer brother, my Uncle Milton, was a classmate of Nash’s at Carnegie Tech in the 1940s, with the two reconnecting at their 50th college reunion. In our digging into the Nash’s biography, we learned something of particular relevance to Acton Institute friends and followers, something I probably should have known already but didn’t: Nash’s decisive contribution to game theory likely has Austrian economics in its blood line.
This is a different point from asserting that Austrian economics could benefit from a thoughtful engagement with game theory. Nicolai Foss makes this case in “Austrian Economics and Game Theory: a Stocktaking and an Evaluation.”
There he explores, from an Austrian perspective, the pros and cons of applying game theory to economics. He concedes that “some aspects of game theory don’t square easily with Austrian economics.” The Austrian allergy to econometrics saves them from the mathematical reductionism and idolatry that distorts so much of modern economics, but Foss says it has the downside of preventing many of them from appreciating what is potentially valuable in game theory. “Austrians have neglected game theory at their peril,” he writes, and “game theoretic reasoning could be one way of modelling key Austrian insights.”
It’s a thoughtful paper as far as it goes, but it leaves largely unexamined a deeper connection between game theory and Austrian economics, a connection I was unaware of until my recent foray into the subject. In an issue of The Quarterly Journal of Austrian Economics, Yvan Kelly shows how Austrian economists influenced game theory at two decisive stages of its development.
Kelly begins by tracing the link between Ludwig von Mises and early game theorists, suggesting that “early game theorists were trained by Austrians who thus influenced the field from its beginning.” She then takes it a step further. “The connection most commonly known is the influence Mises had on Oskar Morgenstern; however, this paper reveals a previously unknown connection between Misses, Bert, Hozelitz, and Nash.”
In a nutshell, she points out that Nash’s one economics course was taught by the Austrian economist Bert Hoselitz, a former student of Mises. This raises the possibility that Austrian thought was a significant influence on Nash’s game theory work, a possibility Nash himself gives credence to:
By coincidence the person who taught the course was someone that came from Austria…. Austrian economics is like a different school than typical American or British. So by coincidence I was influenced by an Austrian economist which may have been a very good influence. (Nobleprize.org 2004)
Kelly concludes modestly: “The link between Mises and Morgenstern and between Mises through Hoselitz to Nash is one that future research could examine more closely to determine the depth of influence…. Further research into areas such as bounded rationality, repeated play games, and social mechanism design could reveal interesting links to or deviations from Austrian thought.”
By way of encouragement for such research, I’ll conclude with a paragraph from a newspaper article summarizing a speech Nash gave in 2011. The passage doesn’t spell out the link between Nash’s most famous breakthrough and any particular aspect of Austrian economics, but it does demonstrate his ongoing preoccupation with Austrian themes:
The subject of Dr. Nash’s lecture was “Ideal Money and the Motivation of Savings and Thrift.” He spoke about recent economic crises, including the national debt of Greece and the “panic of 2008” in the United States. Dr. Nash said that these issues are related to decades-old Keynesian economists’ policies that “have sold to the public a ‘quasi-doctrine’ which teaches, in effect, that … ‘bad money is better than good money.’”