Oskar Morgenstern (January 24, 1902 – July 26, 1977) was a German-born Austrian-American economist. He began his career as a member of the Austrian School of economics, a colleague of such famous exponents as Ludwig von Mises. When Hitler invaded Austria, Morgenstern was a visiting professor at Princeton University and was advised to remain in the United States. There he worked with mathematician John von Neumann on theories to predict economic behavior. Their work led to the publication of the classic Theory of Games and Economic Behavior which established the field of game theory which has served a broad spectrum of the social sciences as a valuable tool in increasing our understanding of human behavior.
Morgenstern was born on January 24, 1902 in Görlitz, Germany. His mother was an illegitimate daughter of German emperor, Frederick III. He graduated from the University of Vienna, earning a doctorate in political science in 1925. He received a scholarship from the Rockefeller Foundation to further his studies in the United States, where he spent the next four years.
Upon his return to Austria in 1929, Morgenstern started work at the University of Vienna, first as a lecturer and then a professor in economics. During that time he belonged to the so-called "Austrian circus," a group of Austrian economists including Gottfried Haberler and Friedrich von Hayek, who met regularly with Ludwig von Mises to discuss different issues in the field. The group was the Austrian equivalent of Keynes's "Cambridge Circus."
In 1938 Morgenstern traveled to the United States as a visiting professor in economics at Princeton University in New Jersey. It was there that he heard the news that Adolf Hitler had occupied Vienna, and that it would probably be unwise to return to Austria. Morgenstern decided to stay in the United States, becoming a naturalized citizen in 1944.
After Morgenstern became a member of the faculty at Princeton he started to work closely with mathematician John von Neumann, developing a theory of predicting economic behavior. In 1944, they wrote Theory of Games and Economic Behavior, recognized as the first book on game theory.
Morgenstern married Dorothy Young in 1948.
Throughout the 1950s and 1960s Morgenstern continued to write on different economic issues, publishing On the Accuracy of Economic Observations in 1950, Prolegomena to a Theory of Organization in 1951, and The Question of National Defense and International Transactions and Business Cycles in 1959. He retired from Princeton in 1970.
Morgenstern accepted the position of professor in economics at New York University in 1970, where he remained until his death in 1977. New York University appointed Morgenstern its distinguished professor of game theory and mathematical economics just before his death.
Morgenstern died in Princeton, New Jersey, on July 26, 1977.
An economist by training, Morgenstern taught and published on a variety of issues to which he applied economic analyses. Beyond the more traditional applications to the development of national economies, Morgenstern was particularly interested in political and military applications.
Together with mathematician John von Neumann, he published the famous Theory of Games and Economic Behavior (1944), which used mathematics to analyze competitive business situations. They suggested that the outcome of a business situation—or "game," as they called it—depends on several parties, or "players." Each player wants to maximize his own benefit, but to do so he must take into account and calculate what all of the other players will do. After he considers all the possible outcomes of the “game,” he determines his own strategy.
They also developed what is known as the “Von Neumann-Morgenstern Utility,” a method used to measure choice in situations of uncertainty. The utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average. The weights are the agent's estimate of the probability of each state. The expected utility is thus an expectation in terms of probability theory.
Beside his work on game theory, Morgenstern studied the empirical validity of economic data. Unlike economists who relied on statistics as an indicator of economic tendencies and regarded statistical analysis as a powerful tool in predicting economic behavior, Morgenstern believed that statistical data contained significant fallacies. The main cause, according to Morgenstern, is that data-collectors do not receive truthful data to start with. Data is often fabricated for tax purposes, to protect trade secrets, or to deceive competition. For these reasons, Morgenstern was convinced that the results of statistical analyses cannot be fully trusted.
Von Neumann and Morgenstern’s 1944 Theory of Games and Economic Behavior, for which Morgenstern provided much of the economic analysis, created the field of game theory and also the theory of choice under uncertainty. Their profound work contained the method for finding optimal solutions for two-person zero-sum games, and has remained a classic in the field.
Game theory played a major role in the social sciences in the second half of the twentieth century, and is still used in many academic fields. It has been applied to animal behavior, including evolutionary theory. Political science and ethics use different games, such as the prisoner’s dilemma, to illustrate situations in the field. Computer scientists also use game theory in cybernetics in working with artificial intelligence.
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