Von Neumann and Morgenstern, Nash politely noted in his paper, had produced a “very fruitful” theory of two-person zero-sum games. Their theory of many-player games, however, was restricted to games that Nash termed “cooperative,” in the sense that it analyzed the interactions among coalitions of players. “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.”15 In other words, Nash devised an “every man for himself” version of many-player games—which is why he called it “noncooperative” game theory. When you think about it, that approach pretty much sums up many social situations. In a dog-eat-dog world, the Nash equilibrium describes how every dog can have its best possible day. “The distinction between non-cooperative and cooperative games that Nash made is decisive to this day,” wrote game theorist Harold Kuhn.16
To me, the really key point about the Nash equilibrium is that it cements the analogy between game theory math and the laws of physics—game theory describing social systems, the laws of physics describing natural systems. In the natural world, everything seeks stability, which means seeking a state of minimum energy. The rock rolls downhill because a rock at the top of a hill has a high potential energy; it gives that energy away by rolling downhill. It’s because of the law of gravity. In a chemical reaction, all the atoms involved are seeking a stable arrangement, possessing a minimum amount of energy. It’s because of the laws of thermodynamics.
And just as in a chemical reaction all the atoms are simultaneously seeking a state with minimum energy, in an economy all the people are seeking to maximize their utility. A chemical reaction reaches an equilibrium enforced by the laws of thermodynamics; an economy should reach a Nash equilibrium dictated by game theory.17
Real life isn’t quite that simple, of course. There are usually complicating factors. A bulldozer can push the rock back up the hill; you can add chemicals to spark new chemistry in a batch of