ECONOMISTS SHARE NOBEL
TRIO PIONEERED USE OF GAME THEORY IN THE FIELD
Author: By David Warsh, Globe Staff
Date: Wednesday, October 12, 1994
Page: 43
Section: BUSINESS
Three economists who were pioneers in using games like chess and poker as
the foundation for understanding complex economic issues were awarded the
Nobel Prize in economics yesterday -- exactly half a century after John Von
Neumann and Oskar Morgenstern launched the field with the publication of "The
Theory of Games and Economic Behavior."
John F. Nash of Princeton University, John C. Harsanyi of the University of
California at Berkeley and Reinhard Selten of the Rheinische Friedrich-
Wilhelms-Universitat in Bonn, will share the award, which this year amounts to
$930,000.
It marks the first time that the Swedes have recognized work in game
theory.
The significance of Von Neumann and Morgenstern's contribution was
recognized by economists and others almost immediately. The lessons they drew
from homely games like chess and poker had nearly universal application to
economic situations in which the participants had the power to anticipate and
affect other participants' actions -- that is, that there was a strategic
aspect to most behavior.
But economists had little immediate success in applying their insights to a
field whose preoccupation with the idea of "free competition" required that
the ability of each particular participant to influence outcomes be
negligible.
So instead, game theory found all kinds of immediate applications in the
1950s to problems of the Cold War, everything from airplane dog-fights to
doctrines of massive retaliation. In a fascinating paperback book called
''Prisoner's Dilemma," writer William Poundstone records the heady
intellectual excitement around the Institute for Advanced Study at Princeton
and Rand Corp. in Santa Monica, Calif., where much of the early work was done.
Nash notched the first formal breakthrough while a young instructor at the
Massachusetts Institute of Technology when he succeeded in generalizing a set
of problems known to economists since the 1840s, when Augustine Cournot began
writing about what might happen when two big companies collide with one
another in the marketplace.
Nash formulated a universal "solution concept" for many-person
''noncooperative" games (meaning those in which no outside authority assures
that players stick to some predetermined rules). His name was thus attached to
the whole range of possibilities that might arise from successfully seeing
through a rival's strategy -- they have been "Nash equilibria" ever since. "It
was a very deep achievement," said Princeton's Avinash Dixit, who was among
those who nominated Nash for the prize.
Nash accomplished many other things, including introducing into economics a
formal theory of bargaining (which the Swedes did not mention in the main body
of their citation). But he made his way mainly as a pure mathematician, doing
widely admired work, exhibiting many of the eccentricities that are associated
with the caricature of that professional type.
Then in 1968, while on leave from Princeton in Paris, he suffered an
extensive nervous breakdown, and has done no work in his field since.
Friends say that just in the last few months has Nash, now 66, resumed
sitting with other mathematicians at meals and teas at the Institute for
Advanced Study in Princeton, instead of keeping to himself. His hold on the
larger world still seems frail, they say, and it is unlikely that he will take
full advantage of the spotlight that a trip to Stockholm affords to most
laureates.
Once again, the Nobel award illuminates the Swedish angle of vision in
economics, in which deep work on which rigorous foundations are erected is
preferred to more intuitive and revealing styles. In doing so, they passed up
the opportunity to honor the discoverers of the "prisoner's dilemma," a
bargaining situation of wide applicability. They also ducked the chance to
recognize Thomas Schelling, a University of Maryland economist who showed how
many game theory concepts could be applied to economics. Hence the awards to
Harsanyi, 74, a theorist who fled Hungary for the United States in 1956, and
Selten, 64, a German scholar. Both researchers proved important mathematical
theorems while refining the concept of Nash equilibria, and Harsanyi in
particular has ventured into topics of philosophy.
Neither is likely to turn up on the nightly news, however, arguing
passionately for their views; their bliss has to do with highly abstract
mathematical models of conflict and cooperation, of potential price wars and
illegal collusion.
WARSH ;10/11 NKELLY;10/13,12:39 NOBEL12
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