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It's Hard to Distinguish
Skill from Luck

Seven Quantitative
Insights into Active
Management -
A Summary



Forecast Return
Distribution in Aegis
Risk Manager 2.0

The Market
Impact Model™ - Part 3

Automating the
Investment Process



Ron Kahn Looks
Back on 11 Years
at BARRA


The BARRA Brainteaser
for Summer 1998
Solution to the Spring
1998 Brainteaser



A Beautiful Mind

A Beautiful Mind

Reviewed by Ronald N. Kahn

The recent movie Good Will Hunting portrayed a classic undergraduate fantasy: that among the janitorial staff lurked a genius smarter than the professors. As a Princeton undergraduate in the late 1970's, I personally encountered a related fantasy: that the odd, unkempt man we saw wandering the halls had revolutionized math and economics before going mad.

The mad part was easy to see. His "cryptic writings covering hallway blackboards lent a unique atmosphere to the physics building."1 They combined math, politics, and religion, occasionally using base 26 numerology (along the lines of: sin(nixon) + cos(kissinger) = mao²).

We had more difficulty verifying the genius part. According to rumor, his name was Nash, and he had developed the Nash Equilibrium of game theory before going on to prove several key theorems in pure mathematics. Who knew at the time whether it was true; but it was a great story, adding much to the Princeton mystique.

Almost 20 years later, a John Nash won the Nobel Prize in Economics. Was the undergraduate legend false? As it turned out, the legend was in fact true: the madman of Fine Hall was Nash. After years of paranoid schizophrenia, he had miraculously recovered, and finally received acclaim for his revolutionary work.

Sylvia Nasar's new biography of John Nash, A Beautiful Mind, tells this incredible story with considerable insight. Most striking is her treatment of the connection between genius and madness. As a young academic star, Nash stood out as antisocial, even among mathematicians. Nasar shows how his mathematical creativity related to his approach to society. Both relied, in the extreme, upon independent logic and a disdain for convention. In reference to Nash's research, mathematician Donald Newman said, "Everyone else would climb a peak by looking for a path somewhere on the mountain. Nash would climb another mountain altogether and from that distant peak would shine a searchlight back on the first peak." [Nasar, A Beautiful Mind, p. 12]

The combination of creativity and the flouting of social convention has also figured prominently in the many recent books by and about Richard Feynman2 and is often part of the myth of genius, but in Nash's case the combination came at high cost. His meteoric rise ended abruptly with a descent into madness, and he remained trapped for the next thirty years in the tortured world of the paranoid schizophrenic. Given his astonishing contributions in the 1950's and subsequent disappearance from the academic scene, many researchers simply assumed he had died. No one understands how or why he ultimately recovered, though many people credit the benevolent atmosphere at Princeton, where Nash lived in peace and quiet for so many dark years.

Beyond its telling of an amazing story and its treatment of genius and madness, A Beautiful Mind also provides a rare look into the secret inner workings of the Nobel Prize process. I can only fault the book in one area—the description of Nash's mathematical achievements. If you didn't understand the Nash Equilibrium before, not to mention his accomplishments in mathematics, you still won't after reading this book.

I recommend A Beautiful Mind to readers of Horizon because it concerns a mathematical advance in economics and tells a great story, but mostly for its insightful and sometimes frightening examination of the nature of creativity. Creativity is critical for long-term success in investing, and we are all well served by understanding it as best we can.