Game Theory and Economic Behavior

Abstract

Until the beginning of 1950s, the economic theory in general, and the microeconomic theory in particular, relied totally on the deterministic character of economic phenomena. Nowadays microeconomic models are built on uncertain elements in a competitive environment that is affected by risk and uncertainty. Two centuries later, traditional microeconomics, also known as derived microeconomics, continues to be based on Adam Smith’s theory. As individuals are interested in participating in commercial transactions, but for these to take place effectively, two essential principles should be observed: the principle of rationality and the principle of pure and perfect competition. The link between Brower’ fixed point theorems on the one hand and John von Neumann’s minimax theorem on the other hand enabled other authors such as McKenzie Arrow and Debreu Uzawa to state and demonstrate simpler but more general theorems than that of Abraham Wald. It was thus supposed that consumer preferences in a pool of possible consumptions are reflexive, transitive and all are comparable. Using game theory as a reference framework to represent the behavior of economic agents, microeconomics strongly renews its scope of investigation. The problem that arises is no longer linked to the study of perfectly competitive markets, but mostly to how agents coordinate their decisions in different strategic configuration circumstances. The use of such concepts as risk, antiselection or coordination limits has opened new scopes to economy in general and to microeconomics in particular.Game Theory, behavior of economic, traditional microeconomics, new microeconomics