Game Theory and Institutions

Unlike many of the papers at this Conference, this paper concerns games against nature rather than games against strategically-motivated human (or computer) opponents. Nevertheless, games against nature are relevant to games against opponents - as the literature makes clear. Indeed, one of the seminal pieces of that literature, John von Neuman/Oskar Morgenstern, The Theory of Games and Economic Behaviour (1947)1, whilst ostensibly addressed to the theory of strategic games, derived one of the key elements of the theory of rational decision making against nature — namely Expected Utility theory — as a key component of the theory of strategic games. Moreover, many of the interesting new developments in Game Theory are pursuing the implications of non-Expected-Utility behaviour in games Contrariwise, some recent developments in individual decision-making, such as those related to intertemporal decision-making, are using results from the theory of games. Clearly, developments in each branch of the literature are relevant to the other branch.

Research Article| December 01 1992 New Insights into the Collaboration between John von Neumann and Oskar Morgenstern on the Theory of Games and Economic Behavior Urs Rellstab Urs Rellstab Search for other works by this author on: This Site Google History of Political Economy (1992) 24 (Supplement): 77–93. https://doi.org/10.1215/00182702-24-Supplement-77 Cite Icon Cite Share Icon Share Facebook Twitter LinkedIn MailTo Permissions Search Site Citation Urs Rellstab; New Insights into the Collaboration between John von Neumann and Oskar Morgenstern on the Theory of Games and Economic Behavior. History of Political Economy 1 December 1992; 24 (Supplement): 77–93. doi: https://doi.org/10.1215/00182702-24-Supplement-77 Download citation file: Zotero Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search Books & JournalsAll JournalsHistory of Political Economy Search Advanced Search The text of this article is only available as a PDF. Copyright © 1992 by Duke University Press1992 Article PDF first page preview Close Modal You do not currently have access to this content.

This dissertation offers an extensive documentation of game theory textbooks published since 1944 in order to analyze and contextualize the main titles. The evolution of textbooks towards the ones currently used indicates three distinct generations, each corresponding to the books published in 1950-1959, 1966-1970, and 1972-1978. Two important transformations in game theory lay behind these different generations: first, a switch from two- to n-person games; and second, a large diffusion of game theory to other areas of economics, such as industrial organization, and to other sciences. Besides such an exploratory analysis, the dissertation also tracked more closely how textbooks presented specific solution concepts: the Nash equilibrium and the core, usually attributed to D. B. Gillies and L. S. Shapley. Concerning Nashs equilibrium, textbooks suggest that practitioners confused it and J. von Neumanns Minimax Theorem, especially because they focused on studying two-person games in the post-War era. As their interests moved to n-person games, however, Nashs equilibrium failed to occupy a central place in textbooks because cooperative games offered problems that were mathematically more interesting. Finally, in the early 1970s, textbooks applied non-cooperative games to industrial organization problems, at a time when those games were becoming increasingly popular. With respect to the core, textbooks show how it went from an instrument devised for helping one find a games solution (in von Neumann and Morgensterns sense) to a solution concept in its own right. The history of the core through textbooks also elucidates how this concept ended up being neglected to the final chapters of the modern texts. Seemingly, in models in which it attained most success (in general equilibrium theory), the core became characterized as not belonging to game theory; and in models in which it remained closely tied to game theory, such as of industrial organization, it failed in producing remarkable results.

Both political and economic analyses and activities, it has been argued, can and should be subject to moral appraisal, and indeed judged in moral terms and with the same moral criteria. Here, a similar claim is made for game-theoretic and laboratory experimental analyses and applications concerning individuals’ behaviour in general, and economic behaviour in particular. The concern here is not so much with the possible relevance of game theory and experimental economics to moral philosophy — whether in their normative or positive applications which attempt to determine, predict or analyse ‘moral’ conduct or ‘moral’ solutions to problems of strategic interactions among individuals. Rather the concern here is with some of the moral presuppositions and potential ethical implications of both game theory and laboratory tests.

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The article presents strategic methods of mathematical modeling of conflicts that are frequently repeated in modern society. Although game theory was initially used in economic and mathematical sciences, as a result of recent research, it has been proven that it can be successfully used in social sciences as well. It is known that the problem of preventing and avoiding any conflict is becoming one of the most relevant topics every year. However, while social sciences show us that conflicts can only be observed, using mathematical methods we can manage and predict conflicts. The scientific article also contains information about the researchers who worked in the mentioned topic. There are also scientific examples of how conflict can be represented and studied in game theory. It is known that the application of game theory in conjunction with the diffusion equation quickly brings us closer to the truth. It is known that the application of the theory of games together with the diffusion equation quickly approaches the truth. In the modern era, we can see that conflicts have developed in an evolutionary way. We can also make sure that the tools of social research that were used to monitor conflicts in the 20th century will not work well in the new millennium. It seems that the first priority for the science of conflictology is to increase the practical fund as much as possible. For the development of the domestic science of conflictology, a large base fund of works and research by European and world scientists is needed. When there is a need to form competent conflict experts, we understand the need for specialists who can use the methods of natural sciences such as game theory, mathematical modeling, and diffusion equations in social sciences. After all, without the aforementioned mathematical methods for predicting and modeling future conflicts, it is undoubtedly difficult to achieve that goal.

a national defense policy, and in particular in their relation to deterrence. In the course of the last twenty years there has been a considerable growth in methods and theories concerning different aspects of human behavior. In particular, in situations involving conscious choice under conditions of possible conflict or cooperation there has been a development in political science, mathematical economics, programming, psychology, simulation, gaming, and game theory. For several years an expectation was built up that game-theoretical models would make an immediate operational contribution to the applied art and hoped-for science of weapons control. The diplomat, the general, and the social scientist, when confronted with the ill-defined and the uncontrollable, have often hoped for a witchmedicine to solve their problems. A common modern formula for the powerful witch medicine contains a game-theoretic model and a large digital computer. Unfortunately, neither the growth of methodology nor technology by itself can solve problems which require a deep substantive knowledge. This does not mean that the new

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Objective: economic and legal description, formal justification and construction of models of the balanced economic, legal and social macrosystems in order to determine effective strategic decisions under uncertainty.Methods: the theoretical and methodological basis of the study is the synthesis of the provisions and principles of game and management theories, economic and mathematical modeling and the game-theoretical models of decision-making in complex systems developed on their basis, as well as theoretical and methodological approaches of system analysis, economics, sociology, and law.Results: the balance of economic, legal and social systems is determined by the target orientation to the growth of the population’s well-being. The existing mechanisms for achieving this balance do not take into account the interests of all participants of the systems. The paper presents a structural analysis of the interaction and mutual influence of economic, legal and social macrosystems (a complex metasystem); the necessity of transforming the existing approaches to their regulation is shown. The problem of ensuring the systems’ balancing is largely related to the conflict of interests of the parties. Therefore, traditional methods of modeling decision-making processes do not reflect the real socio-economic processes. This problem was solved through game-theory models that contribute to the implementation of the constitutionally established norms which define Russia as a social state. When making strategic decisions in the social sphere, it is proposed to use the concept of the Golden rule of morality as the main economic doctrine, instead of the currently used neoliberal approach, based, among other things, on the concept of Nash equilibrium. The equilibrium models of the complex metasystem by Nash and Berge were formalized, constructed and compared.Scientific novelty: in contrast to the Nash equilibrium (principles of rationality) - the traditional approach used in the construction of equilibrium models, - the paper offers a theoretical justification of the development and construction of equilibrium models and balance sheet equilibrium of economic, legal and social macrosystems by Berge, as well as a formalization of effective strategic decisions and their respective risks.A distinctive feature of the constructed macromodels is the use of the philosophical and moral concept of the Golden rule (the mathematical basis is the balance by Berge) as an economic doctrine for strategic decision-making under uncertainty, and the construction of the so-called guaranteed optimal solutions by Pareto (effective), based, among other things, on the concept of the pair “social guarantee - life risk”. If, in real conditions, one of the macrosystems is economic and is a “generator” of uncertainties, a guaranteed solution is formalized, optimal by Slater (weakly effective).Practical significance: the developed methodology for building the system equilibrium of economic, legal and social macro-systems enables to make decisions socially significant for the population that adequately take into account the peculiarities of the modern socio-economic macro-systems, such as nonstationarity, dysfunctionality, incomplete information, inconsistency, conflict, alternatives, multicriterial character, and risk; and to develop assisting intellectual systems of supporting decision-making based on mathematical models built using the game-theory approach.

This paper analyzes the effects of changes in relative commodity prices on the distribution of income among factors of production in the context of two models of a simple, two-good economy. In the first model capital is treated as a specific factor in each industry, with labor mobile between industries. The assumption of specificity determines the direction of factor income changes, with magnitudes depending on substitutability between factors and on intensities of factor use within the two industries. In the second model, capital is viewed as a quasi-fixed factor. For the short run, this model is identical to the model first considered. For the long run, this model is identical to the Stolper-Samuelson model in which the direction and magnitude of factor income changes depend solely on relative factor intensities. The difference between the short-run and long-run determinants of changes in factor incomes gives rise to a conflict between factor owners' short-run and long-run interests.

This important and original book examines the nature of politics from a perspective cutting across conventional academic disciplines. Returning to the traditional emphasis on human nature as the foundation of politics, Roger D. Masters links major issues in Western political philosophy with contemporary research in the life sciences. By relating evolutionary biology, social psychology, linguistics, and game theory to politics, Masters proposes a framework for the emerging field of biopolitics. Masters shows how selfishness and altruism, participation in social groups, languages and cultures, and politics can all be illuminated by empirical evidence from the life sciences. To explore the nature of the human individual, for example, he presents experimental evidence indicating that the psychology of Plato is more exact than the traditions of Hobbes, Locke, and modern behaviorism. Cultural evolution is viewed as a process based on the emergence of human language as a system of information coding and transmission similar to the genetic system but not reducible to genetic determinism. Analyzing the origin of the centralized state, Masters relates contemporary theories of natural selection to the study of social cooperation in political philosophy, game theory, and history. This ambitious work, the fruit of more than twenty years of theoretical and experimental research, seeks to overcome the gap between the natural and social sciences. In addition, it offers a reasonable basis for judging, political institutions and ethical standards. Challenging the nihilism and relativism that have predominated in the West over the last century, Masters indicates why an evolutionary approach to human nature provides reasons for preferring a constitutional regime to autocratic or tyrannical governments. By viewing politics in terms of the kinds of social participation typical within our species for millions of years, this “new naturalism” can help us to formulate decent and humane standards of social life while providing a scientific foundation for the study of political behavior.

As far as recent developments in economic theory are concerned, "Behavioral Economics" constitutes one of the most promising frontiers in the last ten years, as the Nobel Prize for Economics recently won by the social psychologist Daniel Kahneman and the prestigious John Bates Clark Medal granted to the young economist Matthew Rabin testify. It is then worth asking the following questions: what is, exactly, Behavioral Economics? What are the reasons behind its recent success? This survey aims at providing a first answer, both directly and indirectly, to such questions, by illustrating the main contributions developed within such ambitious research program. Behavioral Economics aims at increasing the explanatory and predictive power of economic analysis through an increase in the degree of realism of the assumptions at the basis of economic models, i.e. by means of a greater and greater integration between economics and psychology (but also between economics and social sciences such as, for example, cultural anthropology). While standard economics assumes that agents are driven by well-defined and stable preferences and act rationally, psychology reveals that it is often the case that such assumptions cannot be taken as an adequate and satisfactory description of human behavior. In this light, Behavioral Economics focuses on markets where some (if not all) economic agents involved make choices which appear to substantially deviate from traditional economic predictions. In this survey we focus on the following two fields of studies within Behavioral Economics: a first field deals with the main cognitive limitations affecting economic behavior (Sections 2 and 3), whereas a second one is related to the role of the so called "social preferences" (Section 4). Both areas aim at incorporating the major results obtained both experimentally and empirically into formal economic analysis. Within the first area, it is assumed, analogously to neoclassical models, that agents act according to the self-interest hypothesis, but also that "rational" behavior is affected by several cognitive limitations (in line with classical contributions on bounded rationality; see, in particular, Simon 1978; 1979; 1992). By contrast, the second area departs from the neoclassical approach by introducing modifications at motivational level. Unlike traditional analyses, social preferences studies focus, at both theoretical and experimental level, on interaction scenarios where players act not on classic selfish preferences but on different types of social preferences. In other words, it is still assumed that individual behavior is rational, but also that various forms of non-selfish rationality get into the picture. In particular, behavioral choices by individual agents (as well as their objective functions) can be (either positively or negatively) affected by "other players'" preferences, intentions, material outcomes and/or behaviors.

The most relevant figure associated with game theory is, without any doubt, John von Neumann, the Hungarian-American mathematician—one of the greatest of the twentieth century. Although others preceded him in formulating concepts connected to game theory (notably Emile Borel), it was von Neumann who in 1928 published the paper that laid the foundation for the theory of two-person zero-sum games. His work culminated in an essential book on game theory written in collaboration with Oskar Morgenstern and titled Theory of Games and Economic Behavior (1944).

There is a tendency for some economists who are less familiar with game theory (GT) to comment that it has never fulfilled its early promise and that it essentially has little to offer as a tool to understand, predict and guide human, social and economic behaviour. For instance in Sylvia Nasar’s book ‘A Beautiful Mind’, she recounts the remarkable controversy that surrounded the award of a nobel prize for GT, including one committee member apparently asking for ‘a single major example that game theory had any empirical validity whatsoever’ (p. 371). An excellent reply to such sceptics would be to present them with a copy of Colin Camerer’s new book, ‘Behavioral Game Theory’. This is not to say that his book catalogues an unbroken string of successes for the theory, as we shall see neither GT nor human behaviour emerges unscathed from the body of work reported therein.

In this article, we are interested in exploring the history of game theory in France, and particularly the way it was received and was diffused in the 1950s. It will be shown that France was the most fertile soil in continental Europe for a multidisciplinary welcoming to game theory. Reviewing certain aspects of the intellectual trajectory of the mathematician Guilbaud, the ethnologist Lévi-Strauss and the psychanalyst Lacan, we show how each of them, in his own way, played a key role in advancing game theory: (1) Guilbaud for his constancy in disseminating game theory (and mathematics in general), (2) Lévi-Strauss for his original interpretation of game theory that had some impact on social sciences, and (3) Lacan for using the contributions of game theory. Lacan and Lévi-Strauss were particularly convincing since they were instructed on request about the principles of game theory by Guilbaud.