The Nobel Prize

John C. Harsanyi (1920–2000)

John Harsanyi was born in Budapest, Hungary in 1920. He attended the same school as John von Neumann and showed great early promise in mathematics, winning first prize in a national contest for high-school students in the year of his graduation. Harsanyi’s higher educational choices were made in the shadow of Nazism. He had wanted to study philosophy and mathematics but instead – in keeping with his parents’ wishes (they owned a pharmacy business) – he became a pharmacy student at the University of Budapest. This allowed him to defer his military service and for a time avoid forced labour in the Hungarian Army that his Jewish origin would otherwise have guaranteed. Following the German occupation of Hungary in 1944, Harsanyi was conscripted into a labour unit but managed to escape as the unit was en route to its destruction in an Austrian concentration camp. He survived the rest of the war in hiding (Nobel Foundation, 2004).

In 1946 Harsanyi re-entered the University of Budapest to study for a doctorate in philosophy. He was awarded his PhD in 1947 and spent the 1947–48 academic year teaching sociology at the university. But there was to be no academic career for him in Hungary. Forced to resign his post because his anti-Marxist political views were unacceptable to the authorities, he and his later wife, Anne, eventually fled Hungary illegally and at no small risk across a thinly guarded stretch of border. They settled in Australia at the end of 1950, where Harsanyi studied economics at the University of Sydney in the evening and did factory work during the day. He was attracted to economics ‘because I found the conceptual and mathematical elegance of economic theory very attractive’ (Nobel Foundation, 2004). He was awarded an MA in 1953 and took up a post as Lecturer in Economics at the University of Queensland in Brisbane.

On a Rockefeller Fellowship Harsanyi went to Stanford University in 1956, securing a PhD in 1958 that was supervised by Kenneth Arrow, a subsequent Nobel Laureate (see entry on Arrow in this volume). Although Harsanyi then returned to Australia – to a research position at the Australian National University – with the help of Arrow and James Tobin (Nobel Laureate in 1981), he was back in the United States in 1961 as Professor of Economics at Wayne State University, Detroit. In 1964 he moved to the University of California at Berkeley, initially as visiting professor, and then professor in 1965. Harsanyi remained at Berkeley until his retirement in 1990. He died aged 80 on 9 August 2000.

Harsanyi was a member of the National Academy of Sciences, a fellow of both the American Academy of Arts and Sciences and the Econometric Society, and a distinguished fellow of the American Economic Association. In 1994 he was awarded the Nobel Memorial Prize in Economics, together with John Nash and Reinhard Selten, ‘for their pioneering analysis of equilibria in the theory of noncooperative games’ (Nobel Foundation, 2004).

Game theory is concerned with analysing strategic interaction between individuals where decision making by each party is conditioned by the choices made by others. This kind of interaction is common in economics and takes place, for example, between competing firms, between countries in their international trade policies, in a whole range of principal–agent relationships, and so on. It also has many applications in political science; for example, in arms control – the context in which game theory was initially funded and applied by the US military during the Cold War. The first modern treatment of game theory in economics was John von Neumann and Oskar Morgenstern’s 1944 Theory of Games and Economic Behaviour. This study focused on cooperative zero-sum two-person games. Subsequently, Harsanyi’s fellow Nobel Laureate John Nash introduced the more widely applicable concept of a non-cooperative finite game where there is no negotiation between players, and identified what has become known as Nash equilibrium – a set of strategies between n-players from which no participant has any personal incentive to deviate (Nash, 1950; 1951).

The best-known interpretation of Nash equilibrium considers it to arise as a result of rational behaviour informed by players’ knowledge of each others’ preferences within a game. One difficulty here is that, for many actual situations in economics and other contexts, such complete information is seldom available. For example, an oligopolistic firm knows its capabilities and preferences much better than it knows those of a competitor. Harsanyi’s contribution to game theory, acknowledged in his Nobel award, was to demonstrate that games with incomplete information can be transformed into games with complete but imperfect information for which Nash equilibria can be defined. His innovation was to conceptualise an incomplete information game as ‘type centred’, where type refers to type of player. This approach allows an incomplete information game to be specified in probabilistic terms, thus facilitating its conversion into a game with complete information (see Harsanyi, 1995; Royal Swedish Academy of Sciences, 1995; van Damme and Weibull, 1995). Harsanyi’s work has enabled game-theoretic methods to be fruitfully applied in a whole range of imperfect information settings (see Gul, 1997). The Prize-winning papers were published in Management Science in 1967–68 (Harsanyi, 1967; 1968a; 1968b).

Harsanyi’s Nobel citation also acknowledges his work in welfare economics and in economic and moral philosophy. A number of his journal articles have been collected together in two books: Essays on Ethics, Social Behavior, and Scientific Explanation (Harsanyi, 1976), and Papers in Game Theory (Harsanyi, 1982). These collections are complemented by two other books, one of which Harsanyi coauthored with his fellow Nobel Laureate, Reinhard Selten (Harsanyi, 1977; Harsanyi and Selten, 1988).
Main Published Works
(1967), ‘Games with Incomplete Information Played by “Bayesian Players”: I. The Basic Model’, Management Science, 14, November, pp. 159–82.
(1968a), ‘Games with Incomplete Information Played by “Bayesian Players”: II. Bayesian Equilibrium Points’, Management Science, 14, January, pp. 320–34.
(1968b), ‘Games with Incomplete Information Played by “Bayesian Players”: III. The Basic Probability Distribution of the Game’, Management Science, 14, March, pp. 486–502.
(1976), Essays on Ethics, Social Behaviour, and Scientific Explanation (Foreword by K.J. Arrow), Dordrecht: D. Reidel.
(1977), Rational Behaviour and Bargaining Equilibrium in Games and Social Situations, Cambridge: Cambridge University Press.
(1982), Papers in Game Theory, Dordrecht: D. Reidel.
(1988), A General Theory of Equilibrium Selection in Games (with R. Selten), Cambridge, MA: MIT Press. (1995), ‘Games with Incomplete Information’, American Economic Review, 85, June, pp. 289– 303.

Secondary Literature

Gul, F. (1997), ‘A Nobel Prize for Game Theorists: The Contributions of Harsanyi, Nash and Selten’, Journal of Economic Perspectives, 11, Summer, pp. 159–74.

Nash, J.F. (1950), ‘Equilibrium Points in n-Person Games’, Proceedings of the National Academy of Sciences, 36, pp. 48–9.

Nash, J.F. (1951), ‘Non-Cooperative Games’, Annals of Mathematics, 54 (2), pp. 286–95.
Royal Swedish Academy of Sciences (1995), ‘The Nobel Memorial Prize in Economics 1994’, Scandinavian Journal of Economics, 97 (1), pp. 1–7.

van Damme, E. and J.W. Weibull (1995), ‘Equilibrium in Strategic Interaction: The Contributions of John C. Harsanyi, John F. Nash and Reinhard Selten’, Scandinavian Journal of Economics, 97 (1), pp. 15–40.
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