Who is Reinhard Selten
Reinhard Selten won the 1994 Nobel Memorial Prize in Economic Sciences, along with John Nash and John Harsanyi, for his research on game theory. He was an economist and mathematician.
BREAKING DOWN Reinhard Selten
Reinhard Selten was born in 1930 in Breslau, a German city that is now part of Poland. His childhood was interrupted by World War II. He was half Jewish and became a refugee after his family escaped on one of the last outbound trains from Germany. He returned to Germany after the war, and he went on to earn his Ph.D. in mathematics from the University of Frankfurt.
Selten, who was the first winner of the Nobel Prize in economics from Germany, taught at the Free University of Berlin, the University of Bielefed and the University of Bonn. He also served on the editorial board of a number of academic journals. He died in 2016.
He is known for his pioneering work on game theory, but he first learned about game theory while reading an article in Fortune when he was in high school. He is known for developing the game theory concept of subgame perfection, a refinement of the Nash Equilibrium. His other areas of research included oligopoly theory and experimental economics.
The Nash Equilibrium and the Subgame Perfect Equilibrium
The Nash Equilibrium, which is named after American mathematician John Nash, is considered one of the most important concepts of game theory, which attempts to determine the actions that participants of a game should take to reach the best outcomes for themselves.
The Nash Equilibrium is the solution to a game in which all players have a strategy, and when each participant considers other players’ strategies has nothing to gain by switching strategies. In this solution, every player wins because they all get the outcome that they want.
If, upon revealing other players’ strategies, no player changes their strategy, then the Nash Equilibrium is proven. The Nash Equilibrium can be employed in social sciences, economics and other disciplines. One of the best-known games where the Nash equilibrium can be implemented is the Prisoner’s Dilemma.
Selten developed the concept of subgame perfection, which is a refinement on this concept of the Nash equilibrium. A subgame perfect equilibrium exists when in every subgame, players’ behavior would represent a Nash equilibrium. This means that if participants played any subgame, or any one part of the larger game, their behavior would be a Nash equilibrium in that smaller game. Backward induction is one way to determine a subgame perfect equilibrium.