Oskar Morgenstern

Vollkommene Voraussicht und wirtschaftliches Gleichgewicht

Den Stolz der theoretischen ~konomie bildet die Theorie des allgemeinen wirtschaftlichen Gleichgewichtes, die in verschiedenen Formen entwickelt worden i,st. Die Abweichungen betreffen aber geringfiigige Angelegenheiten, so dal~ im grol~en und ganzen von einer eJnheitlichen Theorie gesprochen werden kann, ob diese nun mathematiseh geraint oder sinngem/il~ in Worten vorgetragen sei. Um so merkwtirdiger ist es, dal~ sich in der gesamten Li tera tar weder gena~e noch voll, standige Angaben fiber die der Theorie vom allgemeinen Gleiehgewicht zugrunde liegenden Annahmen in ordentlicher Weise zusammengesteltt finden. ~elbst bei Walr~a~s ur~d P a r e t o sucht man vergebens darnaeh, obwohl man meinen mfifite, da{~ gerade von ihnen und ihren Nachfol.gern der Herleitung der Lehrs~tze aus den Pr~missen besondere Beachtung hEtte geschenkt werden mfissen. In dem festzustellenden Mangel kommt deutIich die allgemeine logi, sehe Naeh1/~ssigkeit zum Ausdruek, die die theoretische 6konomie zu einem viel hSheren Grade kennzeichnet, als bisher klargemacht worden ist. Man pflegt sich in der 0konomie angesieh~s einer Reihe von Fragen, die heute noch vSllig ungelSst sind, allzu rasch zu berutfigen und geht auf Spezialfr~gen ~ber, zu denen sich um so weniger atrssagen lal~t, ~e l~nger der andere Zustand andauert. Ein besondevs beaehtliches Beispiel bietet die Tatsache, dal~ die mathematischen Okonomen gleiehgiiltig, ob es sich ~am das allgemeine oder um irgendein spezielles Gleichgewicht handelt sich damit begniigt h~ben, fostzustellen, dal~ ebensoviel Gleichungen wie Unbekannte vorhanden sind, anstatt nun erst mathematisch genau zu beweisen, d a R e s fiir diese Gleichungen iiberhaupt eine, und zwar genau eine LSsung gibtl). Die nachfolgenden, sehr kurz gehaltenen und daher oft vielleich~ n u t andeut~n~sweisen Ausfi ihrungen bezwecken auf ein Problem der Gleichgewichtstheorie und damit ~eder Abaft yon theoretischer

Demand Theory Reconsidered

Introduction: scope of the paper, 165. — I. Individual demand schedules: fundamental properties, 166; alternative maximum bids, 168; reconstitution of the demand curve, 170; the reaction function, 172. — II. Collective demand schedules: additivity in closed markets, 175; more complex cases and the theory of games, 179; successive adaptation and time intervals, 182; recontracting, 185; successive adaptation in open markets, 186; further properties, non-additivity, 189. — III. Applications: elasticity of demand, 191; monopolistic discrimination and monopolistic competition, 195; the cobweb theorem, 198; the supply curve, non-additivity, 199. — Conclusions, 200.

Some Reflections on Utility

The von Neumann-Morgenstern ‘expected utility hypothesis’ as presented in Chapter I of The Theory of Games and Economic Behavior (1944) was the first attempt at a rigorous axiomatization of a fundamental concept of economics, namely, a general theory of utility. There is no a priori notion of ‘rationality’ in the theory; rather, that is a concept to be derived and given meaning to from the theory. The theory is ‘absolutely convincing’ in the sense that if behavior deviates from that predicated by the theory, after explanation of the theory, behavior would be adjusted. The von Neumann-Morgenstern ‘expected utility theory’ was the first approximation to an undoubtedly much richer and far more complicated reality. Critics of the theory, such as Allais and others, have centered their criticism of the theory not on the internal consistency of the axioms of which the theory is composed but rather on the validity of the axioms themselves. In that sense, the attacks on the theory are misplaced. It is common knowledge throughout scientific circles that axiomatic systems are often modified as axioms are more precisely specified, qualified, or, at times, replaced, as our understanding of physical laws is expanded. Not unexpectedly, the evolution of the von Neumann-Morgenstern ‘expected utility theory’ over the past thirty years is in complete concordance with scientific progress.

Competition and collusion in bilateral markets

In this paper, the core of a market game which constitutes the set of equilibria in the process of competitive contracting and recontracting is criticized as a solution concept for not being immune against “theory absorption” in the sense that knowledge of the core on part of the traders may result in a collusive stabilization of some dominated imputation. It is pointed out that a stable set (or, von Neumann-Morgenstern) solution does not suffer from this deficiency. Moreover, it is argued that stable set solutions provide an adequate analytical framework for the study of collusion, and are in this respect superior to the approach (relying on the core concept) chosen by Aumann in his work on disadvantageous monopolies. For symmetric bilateral market games — generated by markets involving the exchange of only two commodities, one of which also serves as a means of side payment and utility transfer, among two types of traders — with one seller and one up to three buyers all symmetric solutions are determined. Furthermore, a symmetric solution for markets with equal, but otherwise arbitrary, numbers of sellers and buyers is given. The symmetric stable sets of imputations are interpreted as rational standards of behavior providing the consistent and defensible rules of division necessary to make a cartel agreement viable.

Professor Hicks on Value and Capital

T HE reviewing of books is a matter of importance, responsibility, and difficulty in any field of scientific activity, but it is an especially troublesome task in the social sciences. The reason is that the body of established doctrine is not very well determined, so that the personal equation assumes undue significance. In other sciences the goal toward which scientific efforts are directed may be clearly discernible, while in our field a good deal depends upon the selection made out of a great number of possible goals. They can be approached by such a multitude of means and methods that a fair appraisal and complete understanding of the endeavor of the scholar is not always assured. Differences of such kind no doubt account for much of the confusion that has always marked economic discussions; and only later, when the purposes of the particular investigations as well as the bases upon which they rest become more clearly discernible, can greater unity be achieved. If these difficulties were the principal ones, one could content ones self with the reasonable hope that they might again be overcome when encountered anew. However, there is another source of misunderstanding more disturbing and not less serious. I refer to the considerable haziness of economic theorizing, to the regrettable fact that concepts are frequently ambiguous, often used in different manners, that their interrelations are not made clear,

Das Zeitmoment in der Wertlehre

In den nachfolgenden Dar l egungen 1) w~ird in t~ul~er~ster K~rze in das geltend.e Schema der modernen Theor ie des subjekt iven Wer t e s d~s Zei te lement in seinen wicht igs ten Aspekten eingeffihrt , derart , daft dem Tatbes tande ,der Ff ihrung der Einze lwir t schaf t fiber noch nigher zu best immende Zei tabschni t te oder Zei tper ioden Rechnung g,etragen wird. Der modus procendi ist ,der, dal~ ohne Rficksicht auf mOgliche Wei te rungen , die sich tiber den Rahmen tier Wer t theor i e h inaus durch diese Einf i th rung des Zei telementes erg.eben mSg.en, da~s vor l iegende Schema .der Wer t t eh re e rwei te r t wird. Es wt~re durcha~,s denkbar, dal~ sogar die BrauchbarkMt der b isher igen Kons t ruk t ion der Wer t l eh re in F r a g e gestel l t wei~den kSnnte. Dann l~ge eine immanente Kr i t i k vor, ganz anders .al.s .die b isher igen Bedenken gegen die Wer t lehre , wie sie z. B. ven G. C a s s e l fo rmul ie r t wurden und die st~mtlich uns t iehhal t ig sind. Zu diesen F r a g e n sell im vor l iegenden Auf.satz jedoeh nur im Zusammenhang mit e iner nStigen Verscht~rfung .des Grenznutzenpr inz ipes ein Bei t rag gel iefer t werden. F,erner sei noch erwahnt , daft von allen dogmengesehieht l iehen E rS r t e rungen Abstand genommen wird, zumal sieh die naehfolgen,d entwickel ten Gedankengange in wesentl ieh anderer Richtung bewegen, als die Di~skussionen des Zei tmomentes in den verschiedenen Sehr i f ten b isher im Mlgemeinen haben h~rvor t re ten lassen. Der ers te Auter , der k la r e rkann t hat, wor in die Bedeutung des Zeitelementes ffir die Wer t theor i e ~nd damit fiir die Grundlage der

Die Grenzen der Wirtschaftspolitik

Wirtschaftspolitik besteht in der Gesamtheit aller Handlungen und Masnahmen, die zum Ziele haben, uber den wirtschaftlichen Interessenbereich des Handelnden hinaus oder von letzterem ganz unabhangig, einer beliebig grosen Gruppe von Wirtschaftern oder Unternehmern Vorteile (selten Nachteile) zu bringen, bei welchen Handlungen der Beweggrund vornehmlich in dieser Genieinschaftswirkung liegt.

On the International Spread of Business Cycles

ICAL APPROACH AS LONG as economists have studied economic fluctuations they have recognized that the disturbances of economic life often have a tendency to spread from one country to another. Businessmen likewise have been aware of this tendency and have sometimes had reason to welcome the impulses received from prosperity elsewhere, sometimes to complain about the bad effects of distress abroad. We do not have too much knowledge about the working of a business cycle in a closed economy, but we know even less about the transmission of cycles from one country to another. The study of national cycles has progressed chiefly because abstract general speculations, based on scanty material, have been exarnined and gradually replaced by more cautious, limited hypotheses based on

Further Consideration of “An Open Expanding Economy Model”

We consider some issues arising from our paper, “An Open Expanding Economy Model”, Naval Logistics Research Quarterly, 16 (1969), pp. 443–457. Some of these issues were left open in that paper and others have been inspired by comments of readers.

Game Theory: A New Paradigm of Social Science

Game Theory is essentially a mathematical discipline which aims at explaining optimal strategic behavior in social games as well as in economic and political situations. The theory is normative in that it gives advice; it is descriptive in that it shows social and economic phenomena as being strictly identical with suitable games of strategy. Sharp, quantitative concepts are formed for hitherto only vaguely known events. The role of chance devices for rational behavior is established. Notions of equilibria, different from those in the physical sciences, are developed; these, called “standards of behavior,” determine zones of uncertainty found to be inherent in social processes. Game Theory emerges as a fundamentally new approach to the social sciences, has stimulated many mathematical researches, initiated experimental work in new areas and illuminated large parts of the social world. The Theory is in the stage of active development carried on in many parts of the world.