A pharmacist’s son in Budapest
John C. Harsanyi was born in Budapest on May 29, 1920, the only child of Károly Harsányi and Alice Gombos, who owned a pharmacy that gave the family a comfortable living. His parents were Jewish by origin; they converted from Judaism to Catholicism a year before he was born, and he was raised a Catholic.
He attended the Lutheran Gymnasium in Budapest, one of the best schools in Hungary, whose alumni included the mathematician John von Neumann and the physicist Eugene Wigner. He was one of the best problem solvers of KöMaL, the famous Hungarian mathematics journal for secondary school students, and in 1937, the year he graduated, he won first prize in mathematics in the Hungary-wide annual competition for high school students.
Choosing pharmacy to survive
Harsanyi wanted to study philosophy and mathematics. But in 1937, with Hitler in power in Germany and his influence growing in Hungary, he chose pharmacy instead. As he explained in his Nobel autobiography, a pharmacy student would receive a military deferment, and because he was of Jewish origin, military service would otherwise have meant a forced labour unit of the Hungarian army. His father sent him to study chemical engineering in Lyon in 1939, but the outbreak of war brought him back to Budapest, where he completed a diploma in pharmacy in 1944.
Hungary’s anti-Jewish laws classified people by descent, not by religion, so the family’s conversion offered no protection. When the German army occupied Hungary in March 1944, his deferment ended, and from May to November 1944 he was forced to serve in a labour unit.
Escape from the deportation train
In November 1944 the Nazi authorities decided to deport Harsanyi’s labour unit from Budapest to a concentration camp in Austria, where most of his comrades eventually perished. At the railway station, just before the train left, he managed to escape. A Jesuit priest he knew hid him in the cellar of the Jesuit monastery until the danger passed.
After the war he returned to the University of Budapest and earned a doctorate in philosophy, with minors in sociology and psychology, in 1947. At that time he was a devout Catholic, studied theology and joined the lay ranks of the Dominican order; later in life he abandoned Catholicism and became an atheist.
A second escape, from Stalinism
From 1947 to 1948 Harsanyi taught at the university’s Institute of Sociology, where he met Anne Klauber, a psychology student in one of his courses. In June 1948 he was forced to resign because he was an outspoken anti-Marxist, and Anne was continually pressured by Communist classmates to break up with him. She realised before he did, he wrote, that Hungary was becoming a completely Stalinist country and that they had to leave.
In April 1950, as the Communist authorities were about to confiscate the family pharmacy, Harsanyi, Anne and her parents crossed the Hungarian border illegally through marshy terrain that was less well guarded than other areas. They were lucky not to be stopped or shot at. After months in Austria waiting for Australian landing permits, they reached Sydney on December 30, 1950, and John and Anne married on January 2, 1951.
Factory work and night school
In Australia his Hungarian degrees were not recognised and his English was weak, so for most of his first three years he worked in factories. In the evenings he studied economics at the University of Sydney, attracted by the conceptual and mathematical elegance of economic theory, and he earned a master’s degree in 1953 while already publishing in leading economics journals. In 1954 he became a lecturer at the University of Queensland in Brisbane.
A Rockefeller Fellowship took him and Anne to Stanford University in 1956, where he wrote a dissertation in game theory under the future Nobel laureate Kenneth Arrow and received a second PhD, in economics, in 1959. Back in Australia, at the Australian National University, he felt isolated because game theory was almost unknown there. With help from Arrow and James Tobin he moved to Wayne State University in Detroit, and in 1964 to the University of California, Berkeley, where he taught until he retired in 1990. Their only child, Tom, was born in Berkeley.
Games with incomplete information
Game theory studies situations in which each person’s best choice depends on what others do, from business competition to negotiations between countries. John Nash had defined the equilibrium that bears his name, but the standard analysis assumed that every player knew the others’ goals and payoffs. In most real situations that is false. A firm does not know a rival’s costs, a bidder does not know what others will pay, an insurer does not know a client’s true risk.
In a three-part paper published in 1967 and 1968, “Games with Incomplete Information Played by ‘Bayesian’ Players”, Harsanyi solved the problem. He imagined that each player could be one of several “types”, each with its own preferences and beliefs, and that a fictional first move by “Nature” chooses the types according to probabilities everyone knows, while each player learns only his own type. That turned a game nobody knew how to analyse into an equivalent one that standard methods could handle. The Nobel committee said his approach could be viewed as the foundation for nearly all economic analysis involving information, whether asymmetric, completely private or public.
The Nobel committee gave an everyday example. Businesses and financial markets do not know exactly how a central bank weighs inflation against unemployment. In Harsanyi’s framework the bank can be one of two types, a strict inflation fighter or one more concerned with jobs, with known probabilities, and economists can then analyse how the bank’s actions shape what markets come to believe about it. The idea caused a stir from the start: at a small game theory workshop in Jerusalem in 1965, Reinhard Selten later recalled, the participants had heated discussions about Harsanyi’s new theory.
His other contributions were substantial too. In 1956 he showed that two well-known models of bargaining, by Frederik Zeuthen and by Nash, were mathematically equivalent. In 1963 he extended the Shapley value, a method for dividing the gains of cooperation, to more general games. And in 1973 he showed that almost all mixed-strategy equilibria, in which players seem to randomise, can be understood as the result of players reacting to small private differences in their payoffs, an insight that made such equilibria far easier to interpret.
Where his ideas are used
Harsanyi’s framework, now called Bayesian games, is the standard way economists model situations where people know different things. It underlies the theory of auctions, in which bidders do not know each other’s valuations, and therefore the design of the auctions governments use to sell things such as radio spectrum and treasury bonds. It underlies contract theory and the regulation of firms whose costs the regulator cannot see, the design of insurance, and the analysis of central banks whose intentions markets must guess. From 1966 to 1968 he was part of a team of game theorists, including Reinhard Selten and Robert Aumann, advising the US Arms Control and Disarmament Agency on problems of bargaining and deterrence.
He also made lasting contributions to moral philosophy. In papers from the 1950s he gave a rigorous defence of utilitarianism, arguing that a person choosing rules for society without knowing who he would be in it would choose to maximise average welfare. He became one of the leading exponents of rule utilitarianism, and with Selten he spent nearly two decades developing A General Theory of Equilibrium Selection in Games (1988).
Jewish origins and faith
Harsanyi’s Jewish identity was a matter of descent rather than religion. His parents had left Judaism before his birth, he was raised Catholic, and he later became an atheist. Yet in wartime Hungary it was his Jewish origin that determined his fate: it shaped his choice of studies, sent him into forced labour and placed him on a train bound for a concentration camp. The Jewish Virtual Library records that he was taken by the Nazis because of his Jewish origins and escaped deportation.
The Jewish Virtual Library notes that he had hoped game theory would help produce more peaceful political institutions and a higher standard of living. For a man who had seen both fascism and Stalinism close up, the hope that careful reasoning about conflict could make the world less dangerous was not an abstraction.
Last years and legacy
Harsanyi was a member of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences and the Econometric Society, and a Distinguished Fellow of the American Economic Association. In 1994 he shared the prize in economic sciences with John Nash and Reinhard Selten for their pioneering analysis of equilibria in the theory of non-cooperative games. In his last years he developed Alzheimer’s disease, and he died of a heart attack in Berkeley on August 9, 2000, aged 80.
Twice a refugee and twice forced to start over, Harsanyi gave economics one of its most widely used tools. Whenever economists analyse a market where one side knows more than the other, design an auction or think about how to regulate a firm whose secrets they cannot see, they use the method he invented.
Sources & further reading
John C. Harsanyi, Biographical, NobelPrize.org · Press release: The Prize in Economics 1994, NobelPrize.org · John Harsanyi, Jewish Virtual Library · John Harsanyi, Wikipedia · Researched from the sources above and checked against them. Spotted an error? Tell us.
A life of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.