Game theory trio share Nobel prize

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The Independent Online
THREE academics are to share the pounds 590,000 Nobel prize for economics for their pioneering work in 'game theory'. This has helped explain why workers go on strike, why politicians break their promises and why you can often wait ages for a bus only for two or three to turn up at once.

John C Hasranyi, of the University of California at Berkeley, John F Nash, of Princeton University, and Reinhard Selten, of the University of Bonn, were awarded the prize by the beleaguered Swedish central bank in memory of Alfred Nobel, industrialist and inventor of dynamite.

Game theorists argue that traditional economists dismiss individual consumers and companies unrealistically as the powerless victims of market forces. In traditional theory, for example, firms cannot charge more than the 'market' price for their goods. If they do, all their customers can buy exactly the same product more cheaply from their rivals.

Game theory recognises that companies, trade unions, governments and central banks in fact fight complex strategic battles with each other. No organisation dare make an important decision - say cutting the price of a newspaper - without considering how the other players in the 'game' will react. Like much of economics, game theory has been accused of lending intellectual mystique to the patently obvious.

The trio contributed to the development of game theory in different ways. Professor Nash distinguished between games in which the players can and cannot collaborate. Professor Selton studied games in which the players do not know what is going on around them. And Professor Harsanyi looked at games where the players do not even know what their rivals are trying to achieve.

The backstabbing, cheating and lack of trust that game theorists study often produce results that are worse than if everyone told the truth and stuck to the rules. So rival bus companies run services at the same time and unions fuel inflation by trying to guard against it.

Professor Nash has earned immortality by lending his name to the situation in which all the players in a game are pursuing the best strategy given the strategies of their rivals. In the economists' hall of fame Nash's equilibrium is destined to stand alongside Slutsky's decomposition, Tobin's q, Edgeworth's box, Marshall's scissors, Robinson's banana and Akerlof's lemons.

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