# Game Theory - The Origins Of Game Theory, Nash Equilibrium, The Nash Bargaining Solution, And The Shapley Value

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strategic players player choice

Game theory, the formal analysis of conflict and cooperation, has pervaded every area of economics and the study of business strategy in the past quarter-century and exerts increasing influence in evolutionary biology, international relations, and political science, where the rational-choice approach to politics has been highly controversial. In a strategic game, each player chooses a strategy (a rule specifying what action to take for each possible information set) to maximize his or her expected payoff, taking into account that each of the other players is also making a rational strategic choice. In contrast to economic theories of competitive equilibrium, the focus of game theory is on strategic interaction and on what information is available to a player to predict the actions that the other players will take.

## Additional Topics

Writings by several nineteenth-century economists, such as A. A. Cournot and Joseph Bertrand on duopoly and F. Y. Edgeworth on bilateral monopoly, and later work in the 1930s by F. Zeuthen on bargaining and H. von Stackelberg on oligopoly, were later reinterpreted in game-theoretic terms, sometimes in problematic ways (Leonard, 1994; Dimand and Dimand). Game theory emerged as a distinct subdiscipl…

John Nash, the outstanding figure among the Princeton and RAND game theorists (Nasar; Giocoli), developed, in articles
from his dissertation, both the Nash equilibrium for noncooperative games, where the players cannot make binding agreements enforced by an outside agency, and the Nash bargaining solution for cooperative games where such binding agreements are possible (Nash). Nash equilibrium, b…

Lloyd Shapley and Shubik (1954), two Princeton contemporaries of Nash, began the application of game theory to political science, drawing on Shapley's 1953 publication to devise an index for voting power in a committee system. William Riker and his students at the University of Rochester took the lead in recasting political science in terms of strategic interaction of rational, self-interes…

Game theorists and social scientists have been fascinated by Prisoner's Dilemma, a two-by-two game (two players, each with two possible pure strategies) with a particular payoff matrix (Rapoport and Chammah; Poundstone). The game's nickname and the accompanying story were provided by A. W. Tucker. Suppose that two prisoners, accused of jointly committing a serious crime, are interrog…

The award of the Royal Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel to John Nash, John Harsanyi, and Reinhard Selten in 1994 recognized the impact of game theory (and a film biography of Nash, based on Nasar's 1998 book, subsequently won Academy Awards for best picture and best actor), while the multivolume Handbook of Game Theory, edited by Robert Aumann and Sergiu Ha…

Aumann, Robert J., and Sergiu Hart, eds. Handbook of Game Theory with Economic Applications. 3 vols. Amsterdam: North-Holland, 1992–2002. Aumann, Robert J., and Michael B. Maschler, with the collaboration of Richard E. Stearns. Repeated Games with Incomplete Information. Cambridge, Mass.: MIT Press, 1995. Axelrod, Robert. The Evolution of Cooperation. New York: Basic Books, 1984. Baird, Dou…

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