Editor: James Bergin
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Professor Reinhard Selten (Nobel Prize 1994) visited City University in July to attend the conference on game theory. His lecture focused on the way in which individuals learn how to interact strategically, and what patterns of behavior emerge. The following interview was conducted by Professor Bergin during his visit.
The views of Professor Selten on the evolution of the field of Game Theory - major achievements and major problems outstanding.
Q: Looking back on your work, what do you feel is your best piece of work or research?
A: I’m sometimes asked about this, and it is very hard to say what is best. Actually, other people should judge what is best.
Q: Let me rephrase. What do you like best of your work?
A: Well, it’s really very hard to answer this question .... very hard for me. (Of course) I’m really not satisfied with anything which I have done. That may be the reason for that [not identifying a best or preferred piece]. Everything I have done leaves some problems open. It may look very complete sometimes, and the answer well worked out, but, when I have finished something I am always a little disturbed about it, and not completely satisfied. And, if I think of this, that which could be my best, then I am always disturbed by what I feel is not completely satisfactory about this work.
Q: Changing tack from assessing your own work to work in the field, what do you feel are the most important developments in the last twenty years - or whatever time frame you like - in game theory?
A: Well, what is most important is the emergence of the descriptive branch of game theory - descriptive game theory. Formally, game theory has been exclusively normative but it has now a branch developing which really tries to be descriptive - to see what happens in experiments and like the paper given here [at the conference], was descriptive and was not about what you should do. But even if the title of my talk was how to play three by three games, it was not about my opinion on how they should be played or anything normative, but it was what these subjects who were participants in this study thought they should do ... and this is the most important development of several in game theory.
Of course there were also other developments which might seem as important and to many people maybe more important; that is the rise of non-cooperative game theory. That is what the Nobel prize I got was for - it was not for the empirical things I did - but for the theoretical things. It was the rise of non-cooperative game theory. I can say that until 1973, applications of game theory to economics were quite rare and they were sometimes based on cooperative game theory. There was a branch of economic theory which was connected to game theory. This was general equilibrium theory where the Core concept was applied. And value, and all that, that was important in the sixties and even in the seventies - even still. And in mathematical economics an important influence of game theory was in that area. But it did not reach a broader public.
Then non-cooperative game theory was developing the basis of subgame perfection and perfect incomplete information equilibrium. Equilibrium theory was developing. The development of equilibrium theory [in non-cooperative games] created new approaches to many fields of economics. One of the first was industrial organization. I wrote a paper in 1973 about a simple model of imperfect where four are few and six are many. This was maybe the first thing which was published in this new industrial organization. If you want to trace back where it began, it probably began there - I’m not quite sure. Then, it began with my paper on the chain store paradox which was for a long time available only as a working paper. But it was read a lot before I published it - in 1978, I think. And that was the earliest industrial organization application, new industrial organization developed. And starting from there, game theory invaded all kinds of fields like international trade, and macroeconomics; and everything was full of game theory. Maybe it was there already as there was also some game theory in collective choice, voting in political theory and so on. But somehow it became very widely applied only after the non-cooperative revolution. I think this was very important because it created a closer look at the institutions. People take institutions more seriously - you have to model markets and other interactive situations as extensive form games. That was very important - the extensive form.
But [underlying] the behavioral research (whose goals of study include subgame perfect equilibrium - a very nice tool of analysis) are of course assumptions on behavior; and behavioral assumptions if you want to give them a descriptive meaning have to be psychological. Many economists feel that psychological things should be left to the psychologists but I think this is nonsense. An economist who talks about economic behavior cannot evade making assumptions about psychology, so the only choice he has is to do bad psychology or good psychology. And traditional psychology in economics is the psychology of utility maximization - clearly it is bad psychology.
Q: A more political question - I guess. What do you feel are bad directions followed in the last twenty years, or since the early seventies? Or maybe that’s not something you wish to comment on?
A: Yes, there are some things which are somewhat annoying. I mean there is something absurd in rational expectations. But, it is in a sense not completely wrong because people take into account what others might do in response, and so on. But this is rendered so precise, it is not believable. And it was proposed not as a normative concept, but as a behavioral one.
Because you would for example formulate ….. even for oligopoly there were papers which would assume that a price sequence was expected that should be a rational expectation but what actually would normally be considered as strategies not sequences of results, not a path but a strategy. There would have to be in many cases a game theoretic modeling to look at it from the normative point of view or even from a clean structural point of view - what the structure of the problem is. This rational expectations was on the one hand hyper-rationalistic and on the other hand confusing. It didn’t present a clear picture of the structure because the strategies were missing from the picture or at least not completely described.
Q: Too much of a reduced form?
A: And then such strange nonsensical things such as saddle point instability. But I’m not .... I think maybe all these things had to be done. It’s not that I want to say that this is a complete unnecessary step - it has to be done and in some sense, some things have to be tried and have to be done. So I’m not very strongly against; it’s only mildly annoying and there are some such things which are mildly annoying to me. Another thing is that the profession does not consider alternatives to, or is very reluctant to consider alternatives to the neoclassical traditional view of utility maximization and all that. And, many people ignore experimental findings in behavioral theory. But also, this is becoming better; it is not anymore ignored to such an extent.
Q: You expect that good experimental work will lead to better theories or prediction directly?
A: I think that this will eventually happen, but what is somewhat annoying is that some people may look at the experimental work and then want to explain it in some very complex .... in the traditional way. And I think one should try to do more work on radical reconstruction?
Q: Away from maximizing behavior?
A: Away from maximization completely. Maximization is ... maybe ok ... where it is an activity, where you can describe it - how people do it. But if it is only a requirement for what is valid then you have to work one year in order to find out how the maximization is done - it’s not right. You have to describe what people will really do in order to solve their decision tasks and not rely on such abstract ideas of optimization. So I would try to go away from optimization completely.
Q: My last question. What do you feel are the most important issues or problems in game theory? And I guess it’s this richer modeling?
A: It is the adjustment of game theory to bounded rationality. We have to give more thought to describing what really happens in experiments and game experiments and we have to find a new departure. Game theory will go on; game theory is always changing. It has changed several times in different directions since its beginning. Bob Aumann once said that Game theory (and this was in a discussion where Amon Rappaport asked: “What do we have to do in experiments to refute game theory?”), and he [Aumann] said “no”, game theory cannot be refuted; it is a field like physics, physics cannot be refuted. Theories within physics can be refuted but not physics. And so game theory cannot be refuted; it can be changed, it can develop. In particular, where game theory is meant to be descriptive it is really describing human behavior. It needs to be developed first in several directions. So we have seen in the last decade there is a much better understanding of the motivation of human behavior than economic behavior. We more understand that economic motivation is not just self-centered; there is an interactive economic motivation; there reciprocity is of great importance and so on, and that is now much better understood. But the structure of motivation and the way in which people make decisions about the rationality part is not yet very well understood.
Recent Research Outputs
A list of the recent output with our staff names highlighted is provided below:
Articles in Academic Journals
Park, J., Anming Zhang and Yimin Zhang (2001), “A Theoretical Model of International Airline Alliances”, Transportation Research, B (Methodological), forthcoming.
Stouraitis, Aristotelis and Kevin Kaiser (2001), “Agency Costs and Strategic Considerations behind Sell-offs: The UK Evidence”, European Financial Management, Vol. 7, No. 3, pp. 319-349.
Zhang, Anming and Yimin Zhang (2001), “Airport Charges and Cost Recovery: The Long-run View”, Journal of Air Transport Management, Vol. 7, No. 1, pp. 75-78.
Kwok, Claudian S.K. (2001), “An Aggregate Model of Firm Specific Capital with and without Commitment”, Journal of Monetary Economics, Vol. 48, No. 1, pp. 217-237.
Chow, Gregory and K.W. Li (2001), “China’s Economic Growth: 1952-2010”, Economic Development and Cultural Change, 2001.
Bergin, James (2001), “Common Knowledge with Monotone Statistics”, Econometrica, forthcoming.
Chao, Chi-chur, W.L. Chou and Eden S.H. Yu (2001), “Export Duty Rebates and Export Performance: Theory and China’s Experience”, Journal of Comparative Economics, Vol. 29, No. 2, pp. 314-326.
Oum, T.H., C. Yu and Anming Zhang (2001), “Global Airline Alliances: International Regulatory Issues”, Journal of Air Transport Management, Vol. 7, No. 1, pp. 57-62.
Oum, T.H. and Anming Zhang (2001), “Global Strategic Alliances and the Impacts on the Canadian Airline Industry”, International Journal of Transport Economics, forthcoming.
Ching, Stephen T.F. (2001), “Has the Budget Addressed the Deficit Problem?”, Asia-Pacific Journal of Taxation, Vol. 5, No. 1, pp. 71-75.
Zhang, Anming and H. Chen (2001), “Horizontal Mergers in a Liberalizing World Economy”, Pacific Economic Review, forthcoming.
Liu, Tung and K.W. Li (2001), “Impact of Financial Resources Liberalization in China’s Economic Growth: Provincial Evidence”, Journal of Asian Economics, Summer 2001.
Zhang, Anming, Yimin Zhang and Ronald Zhao (2001), “Impact of Ownership and Competition on the Productivity of Chinese Enterprises”, Journal of Comparative Economics, Vol. 29, pp. 327-346.
Chao, Chi-chur and Eden S.H. Yu (2001), “Import Quotas, Tied Aid, Capital Accumulation, and Welfare”, Canadian Journal of Economics, Vol. 34, No. 2, pp. 588-603.
Zhang, Anming and Yimin Zhang (2001), “Issues on Liberalization of Air Cargo Services in International Aviation”, Journal of Air Transport Management, forthcoming.
Jones, J.C.H., T. Potashnik and Anming Zhang (2001), “Patents, Brand-generic Competition and Pricing of Ethical Drugs in Canada: Empirical Evidence”, Applied Economics, Vol. 33, pp. 947-956.
Zhang, Anming, Yimin Zhang and Ronald Zhao (2001), “Profitability and Productivity of Chinese Enterprises: Measurement and Ownership Implications”, China Economic Review, forthcoming.
Chao, Chi-chur and Eden S.H. Yu (2000), “TRIMs, Environmental Taxes, and Foreign Investment”, Canadian Journal of Economics, Vol. 33, No. 3, pp. 799-817.
Li, K.W. (2001), “The Political Economy of Pre- and Post-1997 Hong Kong”, Asian Affairs, Summer 2001.
Li, K.W. (2001), “The Two Decades of Chinese Economic Reform Compared”, World Economy and China, March-April 2001.
Zhou, Xianming (2001), “Understanding the Determination of Managerial Ownership and Its Relationship to Firm Performance: Comment”, Journal of Financial Economics, forthcoming.
Stouraitis, Aristotelis and Kevin Kaiser (1995), “Value Creation through Corporate Restructuring: European Divestitures”, European Management Journal, Vol. 13, No. 2, pp. 164-174.
Conference Papers
Ching, Stephen T.F. and Vikas Kakkar (2001), “A Market Approach to the Bankruptcy Problem”, presented at the Hong Kong Game Theory Conference, Hong Kong, June 2001.
Li, K.W. and Jun Ma (2001), “China’s WTO Accession and Policy Options for Banking Reform”, presented at the International Conference on Greater China and the WTO, Hong Kong, 22-24 March, 2001.
Stouraitis, Aristotelis, Zhilan Chen and Y.L. Cheung (2001), “Corporate Governance, Firm Performance and Agency Conflicts in Closely-held Firms: Evidence from Hong Kong”, presented at the Multinational Finance Society Annual Meeting, Garda, 2001.
Ching, Stephen T.F. and Vikas Kakkar (2001), “Diagnosing Alternative Characterizations of the Proportional Rule”, presented at the Hong Kong Game Theory Conference, Hong Kong, June 2001.
Chao, Chi-chur, W.L. Chou and Eden S.H. Yu (2001), “Domestic Equity Control, Capital Accumulation, and Welfare: Theory and China’s Evidence”, presented at the International Conference on Greater China and the WTO, Hong Kong, 22-24 March, 2001.
Chao, Chi-chur and Eden S.H. Yu (2001), “Environmental Impacts on Optimal Trade Policies”, presented at the European Association of Environmental and Resource Economists, UK, 28-30 June, 2001.
Ching, Stephen T.F. and Yuming Fu (2001), “Examining Competition in Land Market - An Application of Event Study to Land Auctions in Hong Kong”, presented at the Hawaii Conference on Business, Hawaii, USA, June 2001.
Chao, Chi-chur and Eden S.H. Yu (2001), “Immigration and Welfare for the Host Economy with Imperfect Competition”, presented at the International Conference on International Trade, Dynamics and Growth, Japan, 23-25 July, 2001.
Bergin, James and Lin Zhou (2001), “Optimal Monopolistic Selling under Uncertainty: Does Price Discrimination Matter?”, presented at the International Conference on Game Theory, New York, USA, 2001.
Stouraitis, Aristotelis and Kevin Kaiser (2001), “Reversing Corporate Diversification and the Use of the Proceeds from Asset Sales: The Case of Thorn EMI”, presented at the Hawaii Conference on Business, Hawaii, USA, 2001.
Bender, Siegfried and K.W. Li (2001), “Trade and Comparative Advantage of Asia and Latin America Manufactured Exports”, presented at the APEC Study Center Consortium Conference, Tianjin, China, 18-20 May, 2001.
Selected Working Papers (For a complete 2001 working paper series no. 141-169, visit departmental website)
No. 141 Zhang, Anming, Yimin Zhang and Ronald Zhao (2001), “Impact of Ownership and Competition on the Productivity of Chinese Enterprises”.
No. 147 Li, K.W. and Jun Ma (2001), “China’s WTO Accession and Policy Options for Banking Reform”.
No. 148 Anderson, Kym and Shunli Yao (2001), “GMOs and World Trade: Implications for China as a WTO Member”.
No. 156 Bond, Rick, Stephen T.F. Ching and Edwin L.C. Lai (2001), “Accession Negotiations in the WTO”.
No. 159 Chao, Chi-chur, Win-lin Chou and Eden S.H. Yu (2001), “Domestic Equity Control, Capital Accumulation, and Welfare: Theory and China’s Evidence”.
No. 169 Zhang, Anming, Yimin Zhang and Ronald Zhao (2001), “Profitability and Productivity of Chinese Industrial Firms: Measurement and Ownership Implications”.
Book and Chapter
Brander, J.A. and Anming Zhang (1990), “Market Conduct in the Airline Industry: An Empirical Investigation”, reprinted in Classics in Transport Analysis, edited by K. Button and P. Nijkamp, Edward Elgar Publishing Ltd., forthcoming.
Li, K.W. (2001), Capitalist Development and Economism in East Asia: The Rise of Hong Kong, Singapore, Taiwan and South Korea, Routledge, London, forthcoming.
Other
Ching, Stephen T.F. and Yuming Fu (2001), “Examining Competition in Land Market - An Application of Event Study to Land Auctions in Hong Kong”, HIEBS Working Paper.
If you would like to receive a copy of the Publications, please write to Ms. Lily Yeung, the Administrative Officer of the Department.
Announcements
Promotion
Dr. Li, Shuhe has been promoted to Associate Professor in 1 January 2001. We express our congratulations to him.
New Appointments
Dr. Wang, Yong joined the department as an associate professor in August 2001. Dr. Wang had previously taught at the Chinese University of Hong Kong and Virginia Polytechnic Institute and State University, USA. He received his B.S. in Mathematics from University of Science and Technology of China and his Ph.D. in economics from Brown University, USA. His main research interests are macroeconomic theory, financial and monetary economics, and growth theory. Dr. Wang has published in Economic Journal, International Economic Review, Journal of Economic Theory, Journal of Banking and Finance, and other journals.
Prof. Ng, Y.K. joined the department as a visiting professor in September 2001 till the end of this year. He holds a personal chair at Monash University and is a fellow of the Academy of Social Sciences in Australia since 1980. He has worked in welfare economics, proposed mesoeconomics (a simplified general equilibrium analysis with both micro and macro elements) and welfare biology. He also collaborates with Prof. Xiaokai Yang on an inframarginal analysis of division of labour. He has published a number of books and numerous journal papers as well as commentaries for the popular press.
Dr. Han, Y.W. joined the department as an assistant professor in August 2001. Dr. Han received his B.A. in Public Administration from Yonsei University, Korea and M.A. and Ph.D. in Economics from Michigan State University, USA. His research areas are International Finance (time dependent risk premium, models of exchange rate determination, issues on central bank intervention, and asset pricing models), and Time Series Analysis (modeling heteroskedasticity and volatility, and long memory processes and fractional integration). He has several articles forthcoming in academic journals.
Dr. Kwok, Claudian S.K. joined the department as an assistant professor in August 2001. Dr. Kwok received his Ph.D. in Economics from the University of Minnesota. Before joining City University, he has taught at the Chinese University of Hong Kong. His research interests lie in the areas of Finance and Macroeconomics. In particular, his current research focuses on the roles of the capital market and financial intermediaries. For example, his recent publication in the Journal of Monetary Economics studies the dynamic interaction between the capital market and the Macroeconomy.
Dr. Ng, Siang joined the department as a visiting fellow in September 2001. Dr. Siang Ng did her undergraduate in Singapore and postgraduate study in Australia. She currently teaches economics at Monash University, Australia. She has held visiting lecturing and research positions in Hong Kong, Taiwan, Mainland China and Singapore. Her research areas are: Specialization, Trade and Growth; Asia-Pacific Economies.
Dr. Khoo, Lawrence O.C. joined the department as a visiting fellow in September 2001 till 12 January 2002.
Dr. Yao, Shunli joined the department as a visiting fellow in August 2001. Dr. Shunli Yao received his Ph.D. in economics from the University of California at Davis and specializes in international trade. He is happy to be in Hong Kong because one of his dissertation chapters estimates Hong Kong’s re-export markups, based upon which the conflicting official data on China-US trade balance are reconciled. His recent interests include a CGE analysis of the trade impact of the adoption of transgenic technology in agriculture.
Mr. Wong, T.P. joined the department as an instructor I in August 2001. Mr. Wong graduated from the Chinese University of Hong Kong with a B.Soc.Sc. He also received a M.Sc (Accounting/Finance) from the London School of Economics. He is at present a PhD candidate of the Finance Department of the Hong Kong University of Science and Technology.
Dr. Yau, Louis joined the department as an instructor I in August 2001. Dr. Yau received both his B.Sc. and Ph.D. from the University of Leicester, U.K. Prior to joining us, he taught at the Chinese University of Hong Kong and the Hong Kong University of Science and Technology. His research interest lies with financial time series modelling and its simulation.
Ms. Shinohara, Keiko joined the department as an instructor II in August 2001. Ms. Shinohara obtained her B.Sc. and M.A. from the University of Victoria, Canada. Her main research interests are game theory, international trade, and industrial organization.
Departures
Dr. Huang, Guobo and Jin Zhang (formerly Assistant Professors) left our department in July and August this year respectively. Dr. W.F. Leung and Dr. Chengzhong Qin (formerly Visiting Fellows) left our department in April and July 2001 respectively. We thank for their past contributions to our department and the University. We also wish them every success in their new endeavors.
Ongoing Competitive Earmarked Research Grant
| Principle Investigator | Project Title |
| Bergin James | Monopolistic pricing with stochastic heterogenous demand |
| Cai Jun | Intraday periodicity, long memory volatility, and macroeconomic announcements effects in the treasury bond markets |
| Cai Jun | Volume, frequency, size of trade and macroeconomic announcements: An intraday analysis |
| Ching Tang Foon, Stephen | An evaluation of voting rules by the axiomatic approach – with application to the past, present, and future systems in Hong Kong |
| Ching Tang Foon, Stephen | Potential collusive practice among big developers in Hong Kong: Examining evidence from stock market reaction to government land sale events |
| Kakkar Vikas | An evolutionary approach to comparative advantage |
| Lai Lun Cheung, Edwin | The economic impact of the agreement on trade-related aspects of intellectual property rights under the auspices of the world trade organization, with special focus on China and East Asia |
| Lai Lun Cheung, Edwin | WTO accession and negotiations: Economic theory and case studies |
| Wang Yong | Economic growth, income inequality, and development of financial markets |
| Wu Xueping | Time-varying economic linkages between the Hong Kong and developed markets |
| Yu Siu Hung, Eden | Duty drawbacks versus currency devaluation: Assessment of policies on China’s export competitiveness |
| Zhang Anming | Competition policies and international trade: The case of Pacific-basin economies |
| Zhang Yimin | Efficient management of the airport and airlines |
| Zhou Lin | Testable implications of game theory |
| Zhou Xianming | Management turnover and related incentive issues |
Research Seminars
Our department will organize seminars throughout the academic year. The objective of this well-attended series is to provide a regular forum to communicate recent contributions to economics and finance by local and overseas scholars. We will announce the schedule later. Please contact Dr. Edwin Lai at (852) 2788 7317 or e-mail to efedwin@cityu.edu.hk (for area of Economics); and Dr. Yong Wang at (852) 2788 7286 or e-mail to efywang@cityu.edu.hk (for area of Finance) for details.
