Theory and experiment in the analysis of strategic interaction

Abstract

Much of economics has to do with coordination of independent decisions, and such questions with some well-known exceptions are inherently game theoretic. Yet when Econometric Society held its First World Congress in 1965, economic theory was still almost entirely non-strategic and game theory remained largely a branch of mathematics, whose applications in economics were work of a few pioneers. As recently as early 1970s, profession's view of game-theoretic modeling was typified by Paul Samuelson's customarily vivid phrase, the swamp of n-person game theory; and even students to whom swamp seemed a fascinating place thought carefully before descending from high ground of perfect competition and monopoly. The game-theoretic revolution that ensued altered landscape in ways that would have been difficult to imagine in 1965, adding so much to our understanding that many questions whose strategic aspects once made them seem intractable are now considered fit for textbook treatment. This process was driven by a fruitful dialogue between game theory and economics, in which game theory supplied a rich language for describing strategic interactions and a set of tools for predicting their outcomes, and economics contributed questions and intuitions about strategic behavior