Leading Economists, Thinkers and Outsourcing – Part 2: John Nash

Next in this mini-series about the leading economic thought leaders who were seminal in the development and success of modern outsourcing is the mathematician John F. Nash, who took economists a major step beyond Adam Smith with his ideas on Game Theory and Behavioral Economics.

Nash’s inspiration was that Adam Smith’s principle that the “best result comes from everyone in a group doing what’s best for themselves” was incomplete and needed revision: The best result comes from everyone in a group doing what’s best for themselves and the group.

Whether or not Nash’s inspiration really occurred in the famous bar scene in the movie A Beautiful Mind, Nash introduced the distinction between cooperative games, in which binding agreements can be made, and non-cooperative games, where binding agreements are not always feasible. He developed an equilibrium concept for non-cooperative game scenarios that is called the Nash Equilibrium.

Simply stated, he proved that companies that work together will discover that the sum of the parts can be better when combined effectively than if they work at cross-purposes. This is a key foundation of Vested Outsourcing and the Vested IT outsourcing contract relationship: Cooperate for mutually beneficial outcomes over the long haul to get to the win-win for all the players. In other words, get beyond total self-interest and contract gamesmanship by vesting in each other’s success for the good of the enterprise.

Nash won the Nobel Prize in 1994 for his work and the related work of two others who shared the prize with him that year, John C. Harsanyi and Reinhard Selten. Their work advanced an entire branch of economics that’s now known as Game Theory, or Behavioral Economics.

Game theorists have been studying the economics of playing non-zero sum – or win-win – games for more than 50 years demonstrating that playing nice is indeed good for you, your enterprise and the contracts you negotiate. Since Nash’s Nobel Prize – there have been seven more Nobel Prizes awarded to Game Theorists.

Nash’s breakthrough was vital because he showed the value of reaching equilibrium, or win-win solutions and outcomes in difficult and complex scenarios, as the way to achieve successful business and outsourcing partnerships.