[Math] Why was John Nash’s 1950 Game Theory paper such a big deal

game theory

I'm trying to understand why John Nash's 1950 2-page paper that was published in PNAS was such a big deal. Unless I'm mistaken, the 1928 paper by John von Neumann demonstrated that all n-player non-cooperative and zero-sum games possess an equilibrium solution in terms of pure or mixed strategies.

From what I understand, Nash used fixed point iteration to prove that non-zero-sum games would also have the analogous result. Why was this such a big deal in light of the earlier work by von Neumann?

There are two references I provide that are good: One is this discussion on simple proofs of Nash's theorem and this one is a very well done (readable and accurate) survey of the history in PNAS.

Best Answer

I think von Neumann dealt with the case $n=2$, and it was by no means obvious how to extend the concept of equilibrium for the general case and prove that it always exists. More precisely, $n$ players before Nash were reduced to the $n=2$ case by partioning the players into two groups in all possible ways. Once you regard several players as a single player, they are meant to cooperate as they must act like a single player. Nash is very clear about this in his 1951 Annals paper:

Von Neumann and Morgenstern have developed a very fruitful theory of two-person zero-sum games in their book Theory of Games and Economic Behavior. This book also contains a theory of $n$-person games of a type which we would call cooperative. This theory is based on an analysis of the interrelationships of the various coalitions which can be formed by the players of the game.

Our theory, in contradistinction, is based on the absence of coalitions in that it is assumed that each participant acts independently, without collaboration or communication with any of the others.

The notion of an equilibrium point is the basic ingredient in our theory. This notion yields a generalization of the concept of the solution of a two-person zero-sum game. It turns out that the set of equilibrium points of a two-person zero-sum game is simply the set of all pairs of opposing "good strategies." In the immediately following sections we shall define equilibrium points and prove that a finite non-cooperative game always has at least one equilibrium point. We shall also introduce the notions of solvability and strong solvability of a non-cooperative game and prove a theorem on the geometrical structure of the set of equilibrium points of a solvable game.

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