The Development of the Theory of Games at Princeton and the Rand Corporation

The chapter deals with the development of the theory of games at Princeton—at the Institute of Advanced Studies, at the department of economics and at the department of mathematics—and the Rand Corporation, the two major centers of game theory research in the two decades after the war. The contributions that were most impactful on economics were made by John Nash and Thomas Schelling. Firstly, John Nash’s contributions are analyzed, in particular on non-cooperative game theory, with the introduction of the “Nash equilibrium”, the dominant solution concept for the analysis of games. Then Thomas Schelling’s contributions to a reorientation of game theory are examined, which pays attention to strategic activities, in particular to things like promises and threats, tacit bargaining, the role of communication, design of enforceable contracts and rules, the tactics by which individuals or firms or governments commit themselves credibly.