6

Elementary Game Theory

6.1

What is game theory?

In the preceding chapters we have considered a variety of specific games

and the specialized reasoning that goes with their analysis. Many of the
games discussed, including all of the casino games, involve a single player
pitted against a randomizing device. These are picturesquely referred to
as games against nature. The subject of game theory sheds light on
such games, but focuses mainly on contests involving two or more selfmaximizing players each having a variety of choices and possibly conflicting interests.
Our development will just scratch the surface of the formal Theory
of Games, which sprang almost full blown from the minds of mathematician John von Neumann and economist Oscar Morgenstern. Since the
appearance of their book, Theory of Games and Economic Behavior, game
theory has had tremendous impact upon quantitative social science and a
most interesting history. Hailed after this books publication in 1944 as
the long awaited conceptual framework that any real (deductive) science
needs, the theory was expected to do for the social sciences (primarily
economics, political science and psychology) what calculus did for the
physical sciences. Game theory study and research was encouraged, embraced, and generously funded. But interacting groups of people do not
behave like atoms, molecules, or even billiard balls. Inevitably after so
much initial enthusiasm, disillusionment set in, fueled by game theorys
excessive claims, overquantification and dehumanization of real life situa99