[fnord_too]

It is not that much of an idea. Libertarians, as I understand it, are against regulating business and personal lives except where they spill over to the rights of others. I totally agree with staying the hell out of peoples personal lives. I guess I disagree with them on where the spill over occurs in business, but even if there were no big items like environmental impact or national security or major health risk in play, systems still get stuck in sub optimal states.

Basically, as I understand it, Von Neumann and Morganstern argued that pure capitalism would maximize system utility because each of the players are trying to maximize their personal utility. Even given totally rational players with the same utility function, Nash showed that this theory is incorrect.

Here's a quick example, without numbers or graphs but I will make an effort to find where I first saw this illustration of the concept.

Say we are talking about transportation with a city. Say everyone's utility function is the same, convenience. Everyone has the choice of buying a car or using public transportation, but the more people who use cars the lower everyone's utility is since the roads are more crowded. The marginal increase in utility for each person, up to a point, will be to buy a car. When the system reaches equilibrium (where taking the bus or driving are equally convenient), the level of convience for everyone is lower than if everyone just rode the bus, but anyone switching from car to bus will be taking a hit in their convenience utility, though if everyone did they would all benefit.

This is a pretty simplistic example, but it does illustrate the point. Another good illustration is the one Russell Crowe gave in "A Beutiful Mind" where he is explaining how if everyone goes for the super hot chick and ignores her friends then no one gets laid, but if they ignore the hot chick and go after he less hot (but definitely doable) friends they could all get laid.