Game Theory and Economic Analysis

Game Theory and Economic Analysis

Game Theory and Economic Analysis

Game Theory and Economic Analysis

Synopsis

Taking the reader through a concise history of game theory this collection presents original pieces of work that are relevant to game theory as a whole. The essays cover new applications of game theory to industrial and financial economics.

Excerpt

John Von Neumann’s and Oskar Morgenstern’s Theory of Games and Economic Behavior (TGEB) (1944) made great advances in the analysis of strategic games and in the axiomatization of measurable utility theory, and drew the attention of economists and other social scientists to these subjects. In the interwar period, several papers and monographs on strategic games had been published, including work by Von Neumann (1928) and Morgenstern (1935) as well as by Émile Borel (1921, 1924, 1927, 1938), Jean Ville (1938), René de Possel (1936), and Hugo Steinhaus (1925), but these were known only to a small community of Continental European mathematicians. Von Neumann and Morgenstern thrust strategic games above the horizon of the economics profession. Their work was the basis for postwar research in game theory, initially as a specialized field with applications to military strategy and statistical decision theory, but eventually permeating industrial organization and public choice and influencing macroeconomics and international trade.

The initial impact of the Theory of Games was not based on direct readership of the work. The mathematical training of the typical, or even fairly extraordinary, economist of the time was no preparation for comprehending over six hundred pages of formal reasoning by an economist of the calibre of John Von Neumann, even though Von Neumann and Morgenstern provided much more narration of the analysis than Von Neumann would have offered to an audience of mathematicians. Apart from its effect on Abraham Wald and a few other contributors to Annals of Mathematics, the impact of the Theory of Games was mediated through the efforts of a small group of eminent and soon-to-be-eminent scholars who read and digested the work, and wrote major review articles. The amount of space accorded these reviews and review articles by journal editors was extraordinary, recalling the controversy following the publication of Keynes’s General Theory, but there was an important difference. Economists might find the General Theory a difficult book, but they read it (until recent years). Apart from the handful of young

Presented at a joint session of the American Economic Association and History of Economics Society, Boston, January 3, 1994.

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