Bulletin Autumn‧Winter 2003

Citation Prof. Re i nha rd Selten, Ph.D., Nobel Laureate in Economic Sciences G ame theory is a mathematical method for analyzing the kinds of strategic interaction that take place between players of games such as chess, or, to take a more local example, mah jong. The r esu l t i ng theories can be applied mean i ng f u l ly to players in a wide range of situations, such as nations or armies i n conflict, animals i n competition for food, politicians battling for power, or rival suitors v y i ng for the love of a b e a u t i f ul w oma n. But the strongest interest has been generated in the field of economics, where the f o l l ow i ng scenario ma y take place. C o r p o r a t i on A has a monopoly of a certain product. Competitor B does not want to enter the market against A because of the threat of a price war. If B takes the threat seriously then it stays out of the market and the monopoly situation persists. A situation where the status quo persists is called an equ i l i b r i um i n game theory. But if the threat is not credible because B knows that, in a price war, A w i ll face large losses, then B may come into the market without a price war. This w i l l be a new equilibrium. This equilibrium fulfils a requirement called ‘subgame perfection', which is the requirement that only credible threats be taken into account. The mathematician who first systematically f o rma l i z ed this requirement was Reinhard Selten, who stands here before us today. ‘Subgame perfection' was found to be a d i s c o v e ry of s u ch f u n d a m e n t al importance to economics and other fields that all f u t u re t h i n k i ng about strategic interactions between competitors has had to take it into account. It is for this discovery among others that Reinhard Selten was awarded the Nobel Prize for Economics in 1994. Reinhard Selten was bo rn i n 1930 i n what was then Breslau, a city in Germany. His father was Jewish and his family barely escaped the Holocaust. These early years under the Na zi repression made a deep impression on h i m; for the rest of his life Prof. Selten has pa id close attention to po l i t i c s, w h i c h e v e n t u a l ly l ed h i m to economics. But, above all, being part of an oppressed minority taught h i m to trust his o w n j u d gme nt rather t han that of the majority, whose opinions can be warped by propaganda. A f t er the war he l i ved i n a v i l l age near Me l s u n g e n, a sma ll t o wn where he attended high school un t il 1951. Here he first developed his passion for mathematics. Du r i ng the three and a half The 60th Congregation 61