National / International News
John Nash, who died with his wife, Alicia, in a car crash Saturday at 86, was a mathematician, not an economist.
But the phenomenon he described — known as Nash's Equilibrium — revolutionized the world of economics and game theory.
Around the end of World War II, game theory was gaining steam in academic circles, says Dale Jorgenson, a professor of economics at Harvard University. "But there really wasn't much evidence that this was having much effect on the way people thought about strategic situations," Jorgenson says.
Before Nash came along, game theory was about zero-sum games: one party wins, one party loses. Nash provided a mathematical way of understanding games that more closely resemble the real world, where we don't necessarily have clear winners and losers.
"When [people] look back at the Nash Equilibrium they think, 'Oh my God, this is so simple, it's amazing that it was so groundbreaking because it seems so obvious,' " says Alex Bellos, author of "Alex’s Adventures in Numberland." "And it seems so obvious because it's just become part of culture."
Today, game theory is used to describe myriad social phenomena, including those in business and politics. Bellos says every time someone says "zero-sum game," they owe a little credit to Nash.
When Roger Myerson, a professor of economics at the University of Chicago, was starting his academic career in the 1970s, Nash’s work was maturing. Even so, Nash had withdrawn from public life as he battled paranoid schizophrenia.
"At that time I knew he was alive, but there was no hope we could ever meet him," Myerson says.
Myerson says while Nash was out of the public eye, his work revolutionized the field of economics.
"It’s moved economics from a focus on resource allocation to a focus on understanding how behavior responds to incentives," Myerson says.
After Nash reentered public life in the 1980s, he was famous. In 1994, he won a Nobel Prize, and in 2001, his life story was fictionalized for the film "A Beautiful Mind."
Takata’s recall of defective airbags in 34 million vehicles – equivalent to two years of sales in the entire U.S. auto market – is a juggernaut. It isn’t the largest, however. That title belongs to the 2004 recall of 150 million pieces of Chinese-made toy jewelry that had a high risk of containing lead.
Nor is it the only major recall this year – Toyota just recalled 110,000 vehicles for faulty software.
The fact is, recalls happen all the time. Just last week there were 11, including a stove that turns on by itself and a weight-training bench that can break.
Major recalls can be costly, running into the billions of dollars, especially if lawsuits or fines are involved. And yet, “it’s extremely seldom that a recall leads to the ruin of a company,” says Jonathan Bernstein, president of Bernstein Crisis Management.
Take GM in 2014. It recalled 30 million vehicles. That does not mean, however, that it replaced 30 million vehicles.
“Almost always in the case of a recall it’s just a part getting fixed,” says David Whiston, an equity analyst with Morningstar. “Honestly, the people who make the biggest deal out of them are usually reporters.”
For GM, the cost so far is $2.5 billion. This shaved profits in North America from 8.9 percent to 6.5 percent in 2014, according to Whiston. Costly for sure, but not company ending. GM also had significant cash from its bailout, Whiston says.
Between law suits and repairs, recalls also take a while (Takata’s is expected to take years). So does paying for them.
“The financial damage gets spread out over time, it’s not all at once,” Whiston says. Some firms even have recall insurance.
Takata also has its size and importance going for it.
“The company’s essential to the auto industry,” says David Sullivan, an analyst with AutoPacific. It’s one of the few firms that provide critical safety equipment, including safety belts, to many manufacturers. “They have to survive – they’re too big to fail,” Sullivan says.
Reputational damage can be worse and more enduring than financial damage.
“Arthur Andersen put themselves out of business because of their reputation,” says Bernstein, referring to the Enron accounting scandal. He counsels companies to be quick and thorough in their announcement of problems, acknowledge the feelings of their customers and then move on as quickly as possible. Stringing things along or having small details or negative news leak out intermittently over time withers a brand and consumers relationship to it.
Takata didn’t have to worry about brand recognition, at least not until now, because it’s not a consumer-facing company; it sells to auto manufacturers.
“For a company that’s primarily a business to business, one of their worst nightmares is their name becoming known to consumers in a negative way, because normally their name isn’t known to consumers at all,” Bernstein says. The company may now have to deal with a loss of trust from both consumers and the manufacturers it supplies. Analysts say Takata's recall is survivable, but even given its importance in the automotive industry, it won't be easy.
Most of the victims are believed to be Rohingya Muslims fleeing persecution in Myanmar. They are held until their families pay more money, which few can afford to do.
Olmert, who led Israel until 2009, unlawfully accepted money from a U.S. supporter. He is appealing the decision to the Supreme Court.
Parts of the two states are reeling from weekend flooding that damaged and destroyed homes and killed at least three people.