Bio: Reinhard Selten’s research covers game theory and its applications, as well as experimental economics and the explanation of economic behavior through theories of bounded rationality. In 1994, he won the Nobel Prize in economics with John C. Harsanyi and John Nash for the “pioneering analysis of equilibria in the theory of non-cooperative games.” By introducing the concept of subgame perfection, Professor Selten provided the foundation for a systematic analysis of strategic interactions in a dynamic context. His foundational work has opened new avenues in the game-theoretic analysis of predatory pricing and deterrence from market entry, credibility in economic policy, oligopolies, and the economics of information. His later notion of a “trembling-hand” equilibrium has been fruitfully applied, for instance, in the theory of industrial organization and the analysis of macroeconomic policy.
Professor Selten’s international consulting activities in both industry and government include work on nuclear deterrence and on the recent auctions of the radio spectrum to the telecommunications industry. Before his current appointment at the University of Bonn, Selten held professorships at the University of California at Berkeley, the Free University of Berlin, and the University of Bielefeld. In addition to his many prizes, decorations, and eight honorary degrees, he has been awarded Honorary Membership in the American Academy of the Arts and Sciences.
Expertise: Consumer Responses to Product Innovation
Fellowship Focus: During his tenure as a Batten Fellow, Reinhard Selten will deliver two lectures on his work on experimental economics, bounded rationality, and game theory. In the first talk, he will present his qualitative version of game theory (scenario bundle analysis), which he developed in the 1970s while consulting for the Department of Defense. This method tries to make game-theoretic concepts applicable to situations that do not lend themselves to the quantification of cost and benefits. The second talk will survey recent empirical insights into how humans approach and perceive decision problems. Much of this work is driven by experiments in his Economic Laboratory at the University of Bonn. While many theorists still think of behavioral economics as a collection of anomalous “irrationalities,” experimentalists have in the last two decades arrived at a more detailed picture that not only is informing empirical investigations but also is changing our views of what constitutes rationality.
In addition to presenting these two lectures, Reinhard Selten will work with Matthias Hild to develop applications of behavioral models to the prediction of how consumers choose between competing products. In particular, they will devise the first empirical test of Professor Selten’s aspiration-adaptation theory, which challenges the standard approach to consumer choice. These tests include laboratory experiments in which subjects choose between product alternatives under suitable financial incentives. The data obtained in this manner will be used to validate and modify existing models of consumer choice from the economic literature. These results will lay the foundations for a novel suite of forecasting tools tailored to the needs of practitioners in marketing and product innovation.