ECN 340 Lecture Notes - Lecture 8: John Von Neumann, Nuclear Terrorism, Nobel Peace Prize
21 Apr 2017
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Sometimes incentives result not from the legal system or the presence of the aids virus, but from the actions of other people: your spouse, boss or opponent at the card table. Human (cid:271)ei(cid:374)gs (cid:449)ill tr(cid:455) to a(cid:374)ti(cid:272)ipate o(cid:374)e a(cid:374)other"s desires a(cid:374)d strategies, tr(cid:455) to respo(cid:374)d the(cid:373) and perhaps to thwart them. To understand the complexities of these interactions, we need a special branch of economics: I(cid:374) 20"s john von neumann decided to work out the correct way to play poker, human game of secrets and lies. Vo(cid:374) neu(cid:373)a(cid:374)(cid:374) (cid:272)alled it (cid:862)ga(cid:373)e theor(cid:455)(cid:863) (cid:271)e(cid:272)ause he reaso(cid:374)ed that if (cid:455)ou (cid:449)a(cid:374)t a theor(cid:455) to e(cid:454)plai(cid:374) human interactions, you need a theory that can explain poker. Neumann developed a rational explanation for much of life, and his theory would eventually be applied to: In poker, there is no straight forward connection between what a player bets and hand he holds. Game theory looks for strategies by opponents that are consistent.
