EconAir

John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their ideas with each other and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century.   Even an outline of his accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He headed up a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible.   In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design and building of a modern general computer and consulted on the building of virtually all the early computers. JOHN VON NEUMANN

INTRODUCTION For background, see prior post on The Limits of Negotiation . ECONOMIC NEGOTIATIONS Basic game theory works best in economic negotiations.    The players have the same assumptions (act rationally, make money), enter into the negotiations voluntarily and negotiate which positive payoff matrix they will agree on.   Economists usually assume that people are playing a positive sum (win – win) game.   That is, how to divide up the monetary or utility gains. Game theory indicates there is a better chance at cooperation or reaching good faith agreements if the players know they will be playing the game repeatedly or if both players see an advantage to a long-term agreement. Economic rationality implies that an agent will not agree to an outcome if the individual will be worse off than not negotiating.   The alternatives are not to negotiate or find another party with whom to reach a positive or better agreement.   A competitive economy, however im

INTRODUCTION Much of the political news is about negotiations.   American politicians, in both domestic and foreign disputes, don’t seem to know much about negotiation strategy.   Maybe a little applied game theory would help. IS NEGOTIATION POSSIBLE?   The first question is whether or not negotiation is possible or just a waste of time and effort. Negotiations will be fruitless if at least one party believes there are no possible outcomes that are better than not negotiating.   Compromise is impossible.   Fanatics, true believers, proponents of “Victory at any cost” or “Give me victory or give me death” or parties who believe their opponents are evil are not likely to negotiate. Sometimes leaders act to limit their options or those of their followers.   The famous historical example is when Cortes burned his boats that brought him and his men to Mexico.   Returning to Cuba was no longer an option.   Cortes forced his men to make the “credible” commitment to conq