Brexit, Trump and the Nash Trap. A Loss of Trust.

Abstract

The U.K.’s decision to leave the EU and the voting in of the protectionist Donald Trump to the US presidency has drawn both the UK and the USA into the Nash Trap. U.S. mathematician John Nash (the movie ‘A Beautiful Mind’) postulated that Adam Smith’s declaration that ‘In competition, individual ambition serves the common good’ (the leave approach and Trump’s ‘America First’ proposition) was incomplete. Instead Nash postulated that the best result is for everyone in the group doing what’s best for himself AND the group (the remain in the EU and the international free trade approach). This variation of Adam Smith’s dictum has became known as the Nash Equilibrium and won Nash a share of the Nobel Prize for Economic Sciences. Nash postulated that this trap was lying in wait for every situation of competition and conflict in which parties are unwilling or unable to communicate and collaborate. Any action to escape the Nash trap must involve some consideration of the other party. The point of the Nash Equilibrium is that the choices you make should depend on what everyone else does. Thus, each strategy in a Nash Equilibrium is a best response to all other strategies in that equilibrium. Trust is at the heart of the Nash equilibrium. It underpins the incentive for all parties to be transparent in their strategies to the point that no party will want to change their strategy in response to what the others are doing. The Nash equilibrium could well be called the trust equilibrium. The Nash Equilibrium has helped economists and social scientists understand how decisions that are good for the individual can be terrible for the group. This is because the benefit that people gain in society depends on people cooperating and implicitly trusting one another to act in a manner corresponding with cooperation. The Nash Equilibrium is, in its essence, the general formulation of this assumption.