''Theory of Games and Economic Behavior'', published in 1944 by

Princeton University Press Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large. The press was founded by Whitney Darrow, with the financial ...

, is a book by

mathematician A mathematician is someone who uses an extensive knowledge of mathematics in their work, typically to solve mathematical problems. Mathematicians are concerned with numbers, data, quantity, structure, space, models, and change. History On ...

John von Neumann John von Neumann (; hu, Neumann János Lajos, ; December 28, 1903 – February 8, 1957) was a Hungarian-American mathematician, physicist, computer scientist, engineer and polymath. He was regarded as having perhaps the widest c ...

and

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

Oskar Morgenstern Oskar Morgenstern (January 24, 1902 – July 26, 1977) was an Austrian-American economist. In collaboration with mathematician John von Neumann, he founded the mathematical field of game theory as applied to the social sciences and strategic decis ...

which is considered the groundbreaking text that created the interdisciplinary research field of

game theory Game theory is the study of mathematical models of strategic interactions among rational agents. Myerson, Roger B. (1991). ''Game Theory: Analysis of Conflict,'' Harvard University Press, p.&nbs1 Chapter-preview links, ppvii–xi It has appli ...

. In the introduction of its 60th anniversary commemorative edition from the Princeton University Press, the book is described as "the classic work upon which modern-day game theory is based."

Overview

The book is based partly on earlier research by von Neumann, published in 1928 under the German title "Zur Theorie der Gesellschaftsspiele" (''"On the Theory of Parlor Games"''). The derivation of

expected utility The expected utility hypothesis is a popular concept in economics that serves as a reference guide for decisions when the payoff is uncertain. The theory recommends which option rational individuals should choose in a complex situation, based on the ...

from its axioms appeared in an appendix to the Second Edition (1947).

Von Neumann Von Neumann may refer to: * John von Neumann (1903–1957), a Hungarian American mathematician * Von Neumann family * Von Neumann (surname), a German surname * Von Neumann (crater), a lunar impact crater See also * Von Neumann algebra * Von Ne ...

and Morgenstern used objective probabilities, supposing that all the agents had the same probability distribution, as a convenience. However, Neumann and Morgenstern mentioned that a theory of

subjective probability Bayesian probability is an interpretation of the concept of probability, in which, instead of frequency or propensity of some phenomenon, probability is interpreted as reasonable expectation representing a state of knowledge or as quantification o ...

could be provided, and this task was completed by Jimmie Savage in 1954 and

Johann Pfanzagl Johann Richard Pfanzagl (2 July 1928 – 4 June 2019) was an Austrian mathematician known for his research in mathematical statistics. Life and career Pfanzagl studied from 1946 to 1951 at the University of Vienna and received his doctorate t ...

in 1967.An axiomatization for subjective expected utility appeared in Pfanzagl (1967, 1968) and was endorsed by Morgenstern (1976): "Von Neumann and I have anticipated" the question whether probabilities "might, perhaps more typically, be subjective and have stated specifically that in the latter case axioms could be found from which could derive the desired numerical utility together with a number for the probabilities (c.f. p. 19 of ''The Theory of Games and Economic Behavior''). We did not carry this out; it was demonstrated by Pfanzagl . . . with all the necessary rigor" (page 65). Savage extended von Neumann and Morgenstern's axioms of rational preferences to endogenize probability and make it subjective. He then used

Bayes' theorem In probability theory and statistics, Bayes' theorem (alternatively Bayes' law or Bayes' rule), named after Thomas Bayes, describes the probability of an event, based on prior knowledge of conditions that might be related to the event. For examp ...

to update these subject probabilities in light of new information, thus linking rational choice and inference.

References

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External links

Theory of Games and Economic Behavior
full text at archive.org (public domain) 1944 non-fiction books Economics books Books about game theory Political science books Sociology books 1944 in economics John von Neumann Princeton University Press books Collaborative non-fiction books