GDL

Game Theory and Economic Analysis

Game theory has already observed the passage of its fiftieth birthday; that is,

if one accepts the conventional chronology which places its birth at the publi-

cation of Theory of Games and Economic Behavior (TGEB) by Von Neumann

and Morgenstern (1944). This anniversary evidently did not escape the notice

of the Academy of Stockholm, which in 1994 awarded the Nobel Prize in

Economic Sciences to three game theorists, Nash, Harsanyi, and Selten. A

look back at its brief history brings out several troubling similarities with

economic science, in places where one might not expect to find them.

Game theory was invented in order to satisfy a mathematical curiosity. The

difficulty at the outset was to find a theoretical solution to the problems posed

by uncertainty in games of chance. The example of checkers interested

Zermelo (1913), and then the first complete mathematical formulation of

strategies for games “in which chance (hasard) and the ability of the players

plays a role” was sketched out by Borel (1924), who was himself co-author of

a treatise on bridge. Nothing about this singular and rather marginal branch

of mathematics would at this time have suggested its later encounter with

economics.

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The analogy between economic activity and what goes on in

casinos was only suggested much later, in a far different economic environ-

ment than that which these two mathematicians would have been able to

observe.

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