by Morgenstern
[Title Page, Table of Contents, and Bibliography]: The front matter of the book, including the title page, copyright information, table of contents, and a list of previous works by Oskar Morgenstern. It outlines the structure of the book, which covers topics from the solvability of economic policy problems to the application of game theory and demand theory, as well as memorials for Abraham Wald and John von Neumann. [Preface]: Morgenstern introduces the collection of essays, explaining that they aim to introduce readers to the theory of strategic games developed by John von Neumann. He emphasizes that while the theory is mathematical, its core principles can be understood without complex formulas. He also notes the historical connection between his 1928 work on economic forecasting and the eventual development of game theory. [When is an Economic Policy Problem Solvable?]: This essay explores the conditions under which economic policy problems can be considered solvable. Morgenstern argues that solvability depends on precise formulation, the availability of computational resources, and the set of permissible means. He references Gödel's incompleteness theorem to suggest that some problems may be fundamentally undecidable. He distinguishes between theoretical solutions and practical applications, noting that social and ethical constraints often limit the tools available to policymakers, potentially rendering theoretically solvable problems unsolvable in practice. [Are there Limits to the Application of Mathematical Procedures in Economics?]: Morgenstern investigates the potential limits of mathematics in economics. He rejects common arguments that human nature or psychological factors are 'too rich' for mathematical description, asserting that such views stem from a misunderstanding of mathematics. He critiques the classical Walrasian/Paretian equilibrium models for treating economic agents as solving simple maximum problems in isolation, failing to account for the strategic interdependence of actors. He argues that game theory provides a more realistic mathematical framework for social interaction and suggests that the future of economics lies in developing new mathematical tools specifically suited for social phenomena rather than merely borrowing from physics. [Zukünftige Entwicklungen: Mathematik und Sozialwissenschaften]: Morgenstern discusses the historical relationship between mathematics and the natural sciences, arguing that a similar evolution is occurring in the social sciences. He highlights the roles of Abraham Wald and John von Neumann in establishing mathematical foundations for economic equilibrium and growth. The section also addresses the impact of electronic computers on economic research, the blurring of lines between statistical and historical research, and the emergence of new mathematical problems such as numerical stability in large-scale computations. [Vollkommene Voraussicht und wirtschaftliches Gleichgewicht]: This extensive essay critiques the assumption of 'perfect foresight' (vollkommene Voraussicht) in general equilibrium theory. Morgenstern argues that the concept is often ill-defined and leads to logical paradoxes, most famously illustrated by the Sherlock Holmes and Moriarty example, where mutual anticipation prevents action. He examines the views of Hicks, Knight, Hayek, and others, concluding that perfect foresight is incompatible with equilibrium because it requires individuals to possess the very scientific theory being constructed. He suggests applying Russell's Theory of Types to resolve the logical circularity and distinguishes between technical predictability and effective foresight. [Die Theorie der Spiele und des wirtschaftlichen Verhaltens]: An introduction to the 'Theory of Games and Economic Behavior'. Morgenstern explains why physical analogies in economics are insufficient for situations involving human interaction and conflicting interests. He defines 'rational behavior' within the context of strategic games, introduces the concept of numerical utility (measurable utility), and explains the Minimax theorem for two-person zero-sum games. The section transitions into n-person games, discussing the formation of coalitions, the characteristic function, and the concept of a 'solution' as a standard of behavior rather than a single equilibrium point. [Die Anwendung der Spieltheorie in der Wirtschaftswissenschaft]: Morgenstern evaluates the practical application of game theory to economic reality. He distinguishes between game theory as a mathematical tool (e.g., its duality with linear programming) and as a model for market behavior. Through various historical and contemporary examples (railroad mergers, advertising wars between Coca-Cola and Pepsi, European cartels), he demonstrates that real-world business involves 'power', 'threats', and 'cooperation'—elements that traditional marginalist theory fails to capture. He argues for a shift from simple maximum problems to models of cooperation and strategic interaction. [Grundzüge einer neuen Theorie der Nachfrage]: This section proposes a revision of demand theory, focusing on the temporal and sequential nature of purchases. Morgenstern argues that an individual demand curve represents alternative maximum bids at a single point in time. Once a transaction occurs, the curve must be 'restored' or updated based on the remaining income and the price paid. He introduces the 'Reaction Function' (Reaktions-Funktion) to describe how a consumer's future demand changes after an initial purchase, challenging the static use of demand curves in traditional analysis. The segment includes mathematical definitions and graphical representations of these restored demand functions. [Kollektive Nachfragekurven: Additivität und ihre Grenzen]: Morgenstern examines the construction of collective demand curves, challenging the conventional assumption of additivity. He argues that simple summation is only valid if individual demand functions are independent, which is rarely the case in empirical reality (e.g., fashion or snob effects). He criticizes contemporary economic theory for ignoring the internal structure of aggregates and suggests that game theory provides a better method for understanding these complex dependencies. [Anpassungsprozesse auf geschlossenen Märkten]: This section analyzes demand behavior in a closed market through four stages, focusing on how successive transactions alter the remaining demand. Morgenstern demonstrates mathematically that once a transaction occurs at a certain price, those buyers are removed from the market, creating a 'derived reaction function' rather than a movement along the original curve. He critiques standard monopoly theory for failing to account for the structural changes and potential for buyer coalitions during price discrimination. [Wiederholungsgebote und die Unzulänglichkeit der Elastizität]: Morgenstern discusses more complex demand scenarios involving repeat bids and multiple units. He argues that the traditional concept of elasticity is insufficient for describing short-term price reactions because it ignores the structural transformation of the market—specifically, how a price change can turn an n-person game into an m-person game. He emphasizes that a stable demand structure is a statistical convenience that masks vital internal changes during market adjustments. [Zeitintervalle und das Konzept des Wiederkontrahierens]: The author explores the temporal dimension of market adjustments and critiques the concept of 'recontracting' (Wiederkontrahieren). He argues that recontracting is an artificial thought experiment that avoids the reality of structural changes caused by actual transactions. He also notes that consumer surplus cannot be meaningfully aggregated across individuals due to the impossibility of interpersonal utility comparisons, further complicating the use of collective demand curves. [Offene Märkte und strukturelle Stabilität]: Morgenstern relaxes the assumption of closed markets to discuss 'open markets' where the number of participants varies. He argues that even if the number of buyers remains constant through entries and exits, the internal structure of demand likely changes. He provides a mathematical overview of how individual non-increasing functions aggregate into collective functions, noting that collective demand is typically strictly monotonic but often discontinuous. [Kritik der Elastizität und statistische Bestimmung]: This section provides a detailed critique of the concept of elasticity. Morgenstern argues that the standard measure fails because price changes destroy the very foundation (the unchanged curve) upon which elasticity is calculated. He warns that statistical demand curves derived from historical data are often merely 'reaction points' rather than true representations of initial demand intentions, making them unsuitable for predicting short-term market responses. [Oligopol, Duopol und der Spinngewebelehrsatz]: Morgenstern applies his critique to theories of monopolistic competition and the 'Cobweb Theorem' (Spinngewebelehrsatz). He argues that duopoly theories incorrectly assume a static demand curve during the sellers' price manipulations. Similarly, he contends that the Cobweb Theorem's reliance on fixed supply and demand curves is logically flawed because it ignores how each step in the 'spider web' adjustment process structurally alters the market participants' positions. [Die Angebotskurve und Schlussfolgerungen zur Spieltheorie]: The final theoretical section addresses the supply curve, noting that additivity is even more problematic here than in demand due to mutual dependence on resources and potential cooperation. Morgenstern concludes that traditional price theory, with its focus on simple equilibrium and maximum problems, must be replaced by game theory. He advocates for a shift toward 'standards of behavior' and minimax solutions to account for the strategic, non-additive nature of economic interactions. [Nachruf: Abraham Wald (1902–1950)]: A detailed obituary for Abraham Wald, highlighting his transition from pure mathematics to statistics and economics. Morgenstern recounts Wald's work in Vienna on seasonal fluctuations and the existence of equilibrium solutions, his emigration to the US, and his revolutionary development of Sequential Analysis during WWII. The essay emphasizes Wald's introduction of the minimax principle into statistics and his foundational work on statistical decision functions. [Nachruf: John von Neumann (1903–1957)]: A comprehensive tribute to John von Neumann, describing him as a universal genius whose work spanned pure mathematics, quantum physics, meteorology, and economics. Morgenstern focuses on von Neumann's creation of game theory (the Minimax Theorem) and his model of an expanding economy, which replaced mechanical analogies in economics with strategic and combinatorial logic. The text also covers his pioneering role in electronic computing and automata theory.
The front matter of the book, including the title page, copyright information, table of contents, and a list of previous works by Oskar Morgenstern. It outlines the structure of the book, which covers topics from the solvability of economic policy problems to the application of game theory and demand theory, as well as memorials for Abraham Wald and John von Neumann.
Read full textMorgenstern introduces the collection of essays, explaining that they aim to introduce readers to the theory of strategic games developed by John von Neumann. He emphasizes that while the theory is mathematical, its core principles can be understood without complex formulas. He also notes the historical connection between his 1928 work on economic forecasting and the eventual development of game theory.
Read full textThis essay explores the conditions under which economic policy problems can be considered solvable. Morgenstern argues that solvability depends on precise formulation, the availability of computational resources, and the set of permissible means. He references Gödel's incompleteness theorem to suggest that some problems may be fundamentally undecidable. He distinguishes between theoretical solutions and practical applications, noting that social and ethical constraints often limit the tools available to policymakers, potentially rendering theoretically solvable problems unsolvable in practice.
Read full textMorgenstern investigates the potential limits of mathematics in economics. He rejects common arguments that human nature or psychological factors are 'too rich' for mathematical description, asserting that such views stem from a misunderstanding of mathematics. He critiques the classical Walrasian/Paretian equilibrium models for treating economic agents as solving simple maximum problems in isolation, failing to account for the strategic interdependence of actors. He argues that game theory provides a more realistic mathematical framework for social interaction and suggests that the future of economics lies in developing new mathematical tools specifically suited for social phenomena rather than merely borrowing from physics.
Read full textMorgenstern discusses the historical relationship between mathematics and the natural sciences, arguing that a similar evolution is occurring in the social sciences. He highlights the roles of Abraham Wald and John von Neumann in establishing mathematical foundations for economic equilibrium and growth. The section also addresses the impact of electronic computers on economic research, the blurring of lines between statistical and historical research, and the emergence of new mathematical problems such as numerical stability in large-scale computations.
Read full textThis extensive essay critiques the assumption of 'perfect foresight' (vollkommene Voraussicht) in general equilibrium theory. Morgenstern argues that the concept is often ill-defined and leads to logical paradoxes, most famously illustrated by the Sherlock Holmes and Moriarty example, where mutual anticipation prevents action. He examines the views of Hicks, Knight, Hayek, and others, concluding that perfect foresight is incompatible with equilibrium because it requires individuals to possess the very scientific theory being constructed. He suggests applying Russell's Theory of Types to resolve the logical circularity and distinguishes between technical predictability and effective foresight.
Read full textAn introduction to the 'Theory of Games and Economic Behavior'. Morgenstern explains why physical analogies in economics are insufficient for situations involving human interaction and conflicting interests. He defines 'rational behavior' within the context of strategic games, introduces the concept of numerical utility (measurable utility), and explains the Minimax theorem for two-person zero-sum games. The section transitions into n-person games, discussing the formation of coalitions, the characteristic function, and the concept of a 'solution' as a standard of behavior rather than a single equilibrium point.
Read full textMorgenstern evaluates the practical application of game theory to economic reality. He distinguishes between game theory as a mathematical tool (e.g., its duality with linear programming) and as a model for market behavior. Through various historical and contemporary examples (railroad mergers, advertising wars between Coca-Cola and Pepsi, European cartels), he demonstrates that real-world business involves 'power', 'threats', and 'cooperation'—elements that traditional marginalist theory fails to capture. He argues for a shift from simple maximum problems to models of cooperation and strategic interaction.
Read full textThis section proposes a revision of demand theory, focusing on the temporal and sequential nature of purchases. Morgenstern argues that an individual demand curve represents alternative maximum bids at a single point in time. Once a transaction occurs, the curve must be 'restored' or updated based on the remaining income and the price paid. He introduces the 'Reaction Function' (Reaktions-Funktion) to describe how a consumer's future demand changes after an initial purchase, challenging the static use of demand curves in traditional analysis. The segment includes mathematical definitions and graphical representations of these restored demand functions.
Read full textMorgenstern examines the construction of collective demand curves, challenging the conventional assumption of additivity. He argues that simple summation is only valid if individual demand functions are independent, which is rarely the case in empirical reality (e.g., fashion or snob effects). He criticizes contemporary economic theory for ignoring the internal structure of aggregates and suggests that game theory provides a better method for understanding these complex dependencies.
Read full textThis section analyzes demand behavior in a closed market through four stages, focusing on how successive transactions alter the remaining demand. Morgenstern demonstrates mathematically that once a transaction occurs at a certain price, those buyers are removed from the market, creating a 'derived reaction function' rather than a movement along the original curve. He critiques standard monopoly theory for failing to account for the structural changes and potential for buyer coalitions during price discrimination.
Read full textMorgenstern discusses more complex demand scenarios involving repeat bids and multiple units. He argues that the traditional concept of elasticity is insufficient for describing short-term price reactions because it ignores the structural transformation of the market—specifically, how a price change can turn an n-person game into an m-person game. He emphasizes that a stable demand structure is a statistical convenience that masks vital internal changes during market adjustments.
Read full textThe author explores the temporal dimension of market adjustments and critiques the concept of 'recontracting' (Wiederkontrahieren). He argues that recontracting is an artificial thought experiment that avoids the reality of structural changes caused by actual transactions. He also notes that consumer surplus cannot be meaningfully aggregated across individuals due to the impossibility of interpersonal utility comparisons, further complicating the use of collective demand curves.
Read full textMorgenstern relaxes the assumption of closed markets to discuss 'open markets' where the number of participants varies. He argues that even if the number of buyers remains constant through entries and exits, the internal structure of demand likely changes. He provides a mathematical overview of how individual non-increasing functions aggregate into collective functions, noting that collective demand is typically strictly monotonic but often discontinuous.
Read full textThis section provides a detailed critique of the concept of elasticity. Morgenstern argues that the standard measure fails because price changes destroy the very foundation (the unchanged curve) upon which elasticity is calculated. He warns that statistical demand curves derived from historical data are often merely 'reaction points' rather than true representations of initial demand intentions, making them unsuitable for predicting short-term market responses.
Read full textMorgenstern applies his critique to theories of monopolistic competition and the 'Cobweb Theorem' (Spinngewebelehrsatz). He argues that duopoly theories incorrectly assume a static demand curve during the sellers' price manipulations. Similarly, he contends that the Cobweb Theorem's reliance on fixed supply and demand curves is logically flawed because it ignores how each step in the 'spider web' adjustment process structurally alters the market participants' positions.
Read full textThe final theoretical section addresses the supply curve, noting that additivity is even more problematic here than in demand due to mutual dependence on resources and potential cooperation. Morgenstern concludes that traditional price theory, with its focus on simple equilibrium and maximum problems, must be replaced by game theory. He advocates for a shift toward 'standards of behavior' and minimax solutions to account for the strategic, non-additive nature of economic interactions.
Read full textA detailed obituary for Abraham Wald, highlighting his transition from pure mathematics to statistics and economics. Morgenstern recounts Wald's work in Vienna on seasonal fluctuations and the existence of equilibrium solutions, his emigration to the US, and his revolutionary development of Sequential Analysis during WWII. The essay emphasizes Wald's introduction of the minimax principle into statistics and his foundational work on statistical decision functions.
Read full textA comprehensive tribute to John von Neumann, describing him as a universal genius whose work spanned pure mathematics, quantum physics, meteorology, and economics. Morgenstern focuses on von Neumann's creation of game theory (the Minimax Theorem) and his model of an expanding economy, which replaced mechanical analogies in economics with strategic and combinatorial logic. The text also covers his pioneering role in electronic computing and automata theory.
Read full text