Authors: Ate Nieuwenhuis
This paper tries to rekindle the revolution in economic theory that Von Neumann and Morgenstern intended to unleash, but that was smothered by Nash. The assumption of rational, maximising behaviour by the participants in a social exchange economy leads to a set of interdependent maximum problems. The appropriate treatment of this kind of problem is provided by the theory of simultaneous maximisation, systematically studied for the first time by Bruno de Finetti. Cooperative game theory is a branch of simultaneous maximisation. Non-cooperative game theory errs in deriving the first-order conditions and yields conflicting outcomes for equivalent problems; a prime example is the Cournot equilibrium's differing from the Bertrand equilibrium. The analysis implies that large parts of positive economics must be revised, that normative economics is impossible, and that a stronger assumption is needed for economics to make determinate predictions of how money makes the world go round.
Comments: 29 Pages. 4 tables, 6 color figures
[v1] 2013-09-17 10:26:47
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