nobel-eco-2005 - Advanced information on the Bank of Sweden...

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Advanced information on the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel 10 October 2005 Information Department, Box 50005, SE-104 05 Stockholm, Sweden Phone: +46 8 673 95 00, Fax: +46 8 15 56 70, E-mail: [email protected], Website: www.kva.se Robert Aumann’s and Thomas Schelling’s Contributions to Game Theory: Analyses of Conflict and Cooperation
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1. Introduction Wars and other conflicts are among the main sources of human misery. A minimum of cooperation is a prerequisite for a prosperous society. Life in an anarchic “state of nature” with its struggle of every man against every man is, in Thomas Hobbes’ (1651) famous phrase, “solitary, poor, nasty, brutish, and short”. Social scientists have long attempted to understand the fundamental causes of conflict and cooperation. The advent of game theory in the middle of the twentieth century led to major new insights and enabled researchers to analyze the subject with mathematical rigor. The foundations of game theory were laid out in the classic book by John von Neumann and Oscar Morgenstern, The Theory of Games and Eco- nomic Behavior , published in 1944. The 1994 economics laureates John Harsanyi, John Nash and Reinhard Selten added solution concepts and insights that substan- tially enhanced the usefulness and predictive power of non-cooperative game theory. The most central solution concept is that of Nash equilibrium. A strategy combi- nation (one strategy for each player) constitutes a Nash equilibrium if each player’s strategy is optimal against the other players’ strategies. 1 Harsanyi showed that this solution concept could be generalized to games of incomplete information (that is, where players do not know each others’ preferences). Selten demonstrated that it could be reFned for dynamic games and for games where players make mistakes with (inFnitesimally) small probabilities. Nevertheless, the great intellectual achievements of these researchers would have been to little avail, had game-theoretic tools not been applied to address salient questions about society. The work of two researchers, Robert J. Aumann and Thomas C. Schelling, was essential in developing non-cooperative game theory further and bringing it to bear 1 A non-cooperative game in normal form consists of a list of players, a set of strategies available to each player, and a function that speciFes the payo . consequences to all players of each strategy combination. 1
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2 on major questions in the social sciences. 2 Approaching the subject from di g erent angles–Aumann from mathematics and Schelling from economics–they both per- ceived that the game-theoretic perspective had the potential to reshape the analysis of human interaction. Perhaps most importantly, Schelling showed that many famil- iar social interactions could be viewed as non-cooperative games that involve both common and conflicting interests, and Aumann demonstrated that long-run social interaction could be comprehensively analyzed using formal non-cooperative game theory.
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This note was uploaded on 01/23/2011 for the course ECONOMICS gt512 taught by Professor Breviart during the Spring '10 term at Télécom Paris.

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nobel-eco-2005 - Advanced information on the Bank of Sweden...

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