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GAME THEORY: A BRIEF HISTORICAL INTRODUCTION

The history of game theory is often said to start with the publication of Theory of
Games and Economic Behaviour by John von Neumann and Oskar Morgenstern in
1944. This was certainly a major development and drew together a number of earlier
developments and laid out a program for further developments, as well as introducing
the name game theory for the theory.

There is however a substantial pre-history.

A number of the earlier contributions concern what we would now term two-person
zero-sum games. These games have a very special structure that allows a very strong
solution: each player has a randomized strategy that guarantees him the value
of the game, whatever the other player does. This result is known as the minimax
theorem.

The rst known solution to such a two-person zero-sum game is contained in a letter
dated 13 November 1713 from James Waldegrave to Pierre-Remond de Montmort
concerning a two player version of the card game le Her. De Montmort wrote to the
mathematician Nicolas Bernoulli (perhaps best known, at least among economists, for
his formulation of the St. Petersburg Paradox [url: https://en.wikipedia.org/wiki/St._P
The French mathematician and probabilist Emile Borel published four notes on strategic games between 1921 and 1927. Borel gave the rst formal denition of what we
shall call a mixed strategy and demonstrated the existence of the minimax solution
to two player zero-sum games with either three or ve possible strategies. He initially conjectured that games with more strategies would not have such a solution
but, being unable to nd a counter example, he later considered that to be an open
question.
That question was answered by the Hungarian (and later American) mathematician John von Neumann in 1928. Wikipedia describes John von Neumann [url:
https://en.wikipedia.org/wiki/John_von_Neumann] as having made major contributions to a vast range of elds, including set theory, functional analysis, quantum
mechanics, ergodic theory, continuous geometry, economics and game theory, computer science, numerical analysis, hydrodynamics (of explosions), and statistics, as
well as many other mathematical elds.
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The 1928 proof by von Neumann of the minimax theorem made a nontrivial use of
deep results in topology and functional calculus. He later, in 1937, provided another
proof using Brouwers xed point theorem, which would later prove central to both
Nashs proof of the existence of strategic equilibrium in general nite games and to
the existence of competitive equilibrium by Arrow, Debreu, and McKenzie in the early
1950s.

In 1938 Jean Ville, a student of Borel, gave a new proof of the minimax theorem, based
centrally on the idea of convexity and in particular on the important matematical idea
of the separation of convex sets. The proof of this result in the book by von Neumann
and Morgenstern is a renement of Villes proof, as von Neumann and Morgenstern
explicitly acknowledge.

The rst completely algebraic proof of this result, not relying on any topological
structure or properties (that is having to do with notions of open and closed sets or
of the continuity of functions, in particular payo functions), was by L. H. Loomis in
1946.

These results on the minmax theorem concern what we would now call two person
zero sum normal (or strategic) form games. In 1913 the German mathematician
Ernst Zermelo, most famous for his axiomatization of set theory, gave a statement
concerning a result about what we would now call extensive form games. In a game
like chess either white can guarantee that he wins or black can guarantee that he wins
or both players can guarantee at least a draw. The details of what Zermelo actually
did and of later developments in the 1920s by Denes Konig and Laszlo Kalmar are
discussed by Schwalbe and Walker [2001] (Ulrich Schwalbe and Paul Walker Zermelo
and the Early History of Game Theory,Games and Economic Behavior v34 no1, 12337.) Schwalbe and Walker also give an English translation of Zermelos original paper.

There were a number of substantial advances in the book by von Neumann and
Morgenstern: the axiomatic development of the theory of expected utility; the formal denition of normal form games and extensive form games; the elaboration of
the minmax theorem for two-person zero sum games; and the denition of what are
now called cooperative or coalitional games. Missing was an adequate solution of
noncooperative games other than the two-person zero-sum case. Further, the solution proposed for coalitional games (called by von Neumann and Morgenstern the
solution, and later called von Neumann Morgenstern stable sets) was extremely
cumbersome.
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However more usable solutions were soon proposed. In the early 1950s John Nash
[1950,1951] proposed a denition of equilibrium, that we now call the Nash equilibrium, that has become the central solution concept for noncooperative game theory.
Well study this solution in some detail in this course.

Nashs denition could be thought of as generalizing the much earlier solution concept
of Cournot equilibrium. (Cournot, Augustin A. (1838), Recherches sur les Principes
Mathematiquesde la Theorie des Richesses. Paris: Hachette. English translation:
Researches into the Mathematical Principles of the Theory of Wealth. New York:
Macmillan, 1897. (Reprinted New York: Augustus M. Kelley, 1971.))

In coalition game theory Lloyd Shapley [1952] (Lloyd Shapley Notes on the N-Person
Game III: Some Variants of the von-Neumann-Morgenstern Denition of Solution,
Rand Corporation research memorandum, RM- 817, 1952) and D. B. Gillies [1953]
(D. B. Gillies Some Theorems on N-Person Games, Ph.D. thesis, Department of
Mathematics, Princeton University, 1953) proposed the notion of the core, the set of
all utility allocations that cannot be blocked by any coalition. This is a simplication,
and in a sense a weakening, of the requirements for von Neumann Morgenstern stable
sets, but one that makes the the concept much more usable.
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The core, like the Nash equilibrium, has a close connection to an earlier idea in the
Economics literature, in this case the contract curve of Edgeworth [1881]. (Francis
Ysidro Edgeworth, (1881), Mathematical Psychics: An Essay on the Application of
Mathematics to the Moral Sciences. London: Kegan Paul. Reprinted New York:
Augustus M. Kelley, 1967.) Edgeworth had already argued that in an economy with
two goods and two types of consumer the contract curve would shrink to the set
of competitive equilibria as the number of consumers became arbitrarily large. This
result was shown for more generally for the core by Martin Shubik [1959] (Martin
Shubik, (1959), Edgeworth Market Games, in A. W. Tucker and R. D. Luce, eds.,
Contributions to the Theory of Games, Volume IV, Princeton: Princeton University
Press, pp. 267-278.) for transferable utility games and by Gerard Debreu and Herb
Scarf [1963] (Gerard Debreu and Herbert Scarf (1963), A Limit Theorem on the Core
of an Economy, International Economic Review 4, 235-246.) for nontransferable
utility games.