At first glance, building economic science on the mathematical theory of games seems about as sensible as forecasting real-estate trends by playing Monopoly. But in the past half century, and particularly the past two decades, game theory has established itself as the precise mathematical tool that economists had long lacked.
Game theory provides precision to the once fuzzy economic notion about how consumers compare their preferences (a measure labeled by the deceptively simple term utility). Even more important, game theory shows how to determine the strategies necessary to achieve the maximum possible utility—that is, to acquire the highest payoff—the presumed goal of every rational participant in the dogfights of economic life.
Yet while people have played games for millennia, and have engaged in economic exchange for probably just as long, nobody had ever made the connection explicit—mathematically—until the 20th century. This merger of games with economics—the mathematical mapping of the real world of choices and money onto the contrived realm of poker and chess—has revolutionized the use of math to quantify human behavior. And most of the credit for game theory’s invention goes to one of the 20th century’s most brilliant thinkers, the magical mathman John von Neumann.
If any one person of the previous century personified the word polymath, it was von Neumann. I’m really sorry he died so young.
Had von Neumann lived to a reasonably old age—say, 80 or so—I might have had the chance to hear him talk, or maybe even interview him. And that would have given me a chance to observe his remarkable genius for myself. Sadly, he died at the age of 53. But he lived long enough to leave a legendary legacy in several disciplines. His contributions to physics, mathematics, computer science, and economics rank him as one of the all-time intellectual giants of each field. Imagine what he could have accomplished if he’d learned to focus himself!