![]() And, without the aid of experiments designed to elucidate basic phenomena far removed from immediate practical concerns, knowledge of electricity and magnetism would have accumulated much more slowly. We would likely have known much less today about radios and electric lights, which are not simply improvements on carrier pigeons and kerosene lamps. Suppose, by analogy, that physical scientists had focused almost exclusively on important practical concerns like communication and illumination, to the detriment of more "basic" science such as research on electricity and magnetism. And the relative neglect of empirical work directed primarily at testing and developing economic theory may therefore slow the growth of practical economic knowledge, since sound theory is of incalculable practical value. While answering questions about important parts of the economy is a good thing for economists to try to do, it need not be the activity that best fosters the growth of theory, or fosters the growth of the best theory. In case this does not seem like a heavy indictment, let me explain. ![]() The problem as I see it is that empirical work in economics has focused disproportionately on economically important questions. In this respect, I think the next hundred years will likely bring about a change in the way theoretical and empirical work are related in economics generally, and that, if not, then the entire discipline of economics may also fail to realize its potential. However if we do not take steps in the direction of adding a solid empirical base to game theory, but instead continue to rely on game theory primarily for conceptual insights (deep and satisfying as these may be), then it is likely that long before a hundred years game theory will have experienced sharply diminishing returns. And game theory has already achieved important insights into issues such as the design of contracts and allocation mechanisms which take into account the sometimes counterintuitive ways in which individual incentives operate in environments having decision makers with different information and objectives. Kreps and Wilson 1982), and the tension between equilibrium and efficiency (e.g. Harsanyi, 1967-68 Aumann 1976), the influence of players' expectations and beliefs (e.g. Game theory is, after all, the part of economic theory that focuses not merely on the strategic behavior of individuals in economic environments, but also on other issues that will be critical in the design of economic institutions, such as how information is distributed (e.g. Since the safest part of a long term forecast is the far future, let me state at the outset that I am cautiously optimistic that, a hundred years from now, game theory will have become the backbone of a kind of micro-economic engineering that will have roughly the relation to the economic theory and laboratory experimentation of the time that chemical engineering has to chemical theory and bench chemistry. the experimental work in the 1950's and 60's of Maschler, Nash, Schelling, Shubik, and Selten Note 1.) Indeed, many of the earliest experimental economists are today known primarily as distinguished game theorists, and were drawn to experimentation by the chance to test game theoretic predictions, and observe unpredicted behavior, in a controlled environment (see e.g. Although it too has older antecedents, experimental economics is also a fairly new line of work, having originated more or less contemporaneously with game theory. I will also speculate about the future of experimental economics, which is one of the tools-but by no means the only one-that I anticipate will play an important role in helping game theory bridge the gap between the study of ideally rational behavior and the study of actual behavior. And many of the extensions and reformulations that shaped modern game theory came only in the 1950's and 60's, in the work of Aumann, Harsanyi, Nash, Shapley, Selten, and others. in the work of Cournot, Edgeworth, and Zeuthen), game theory did not become a coherent field until the publication in 1944 of von Neumann and Morgenstern's Theory of Games and Economic Behavior. Although it has antecedents going back much further (e.g. Yet this is the situation of game theory. There is something slightly madcap in agreeing to make a hundred year prophecy about a field of study less than fifty years old, particularly a field that has undergone considerable evolution in that time. Game theory as a part of empirical economics "Game Theory as a Part of Empirical Economics,"Įconomic Journal, January 1991, vol. This paper originally appeared as part of the 100th anniversary of the Royal Economic Society, in ![]() Game Theory as a Part of Empirical Economics
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