A blind bookseller’s son in Breslau
Reinhard Justus Reginald Selten was born on October 5, 1930, in Breslau, then a German city and now Wrocław in Poland. His father, Adolf Selten, had become blind when young and had only three years of schooling, yet he built up a flourishing business called a “reading circle”, lending folders of magazines to customers for a week at a time; the older the folder, the lower the fee. His mother, Käthe, née Luther, was a Protestant; his father was Jewish by origin but did not belong to any religious community.
His parents meant to raise him without a religion so he could choose for himself, but under the Nazi regime it seemed safer to have him baptised a Protestant; the ceremony was one of his earliest memories. In the mid-1930s his father was forced to sell the business, because Jews were forbidden to run any enterprise connected with the press. Adolf Selten died after a serious illness in 1942, before the worst of the terror began; several other relatives became victims of the Holocaust.
Growing up half-Jewish under Hitler
“It was not easy for me to live as a half-Jewish boy under the Hitler regime,” Selten wrote in his Nobel autobiography. At fourteen he had to leave high school, and he was refused the chance to learn a trade; the only work open to him was as an unskilled labourer. About half a year later, in early 1945, his mother, his brothers, his sister and he left Breslau on one of the last trains out before all rail traffic stopped as the Soviet army approached.
The experience shaped his mind. As a member of an officially despised minority, he wrote, he had to pay close attention to politics early in life and to trust his own judgement rather than official propaganda or public opinion. That habit of independent thinking, and a lasting interest in public affairs, drew him toward economics.
Refugee, farm boy and mathematician
After leaving Breslau the family were refugees in Saxony, Austria and finally Hesse. Until schools reopened in 1946 Reinhard worked as a farm boy. From 1947 he attended high school in Melsungen, and for a time he walked about three and a half hours a day to and from school, occupying his mind with problems of geometry and algebra. All his life he liked to think while walking in forested hills.
In his last year of school he read an article about game theory in Fortune magazine and was immediately captivated. He studied mathematics at the University of Frankfurt from 1951 to 1957, found von Neumann and Morgenstern’s Theory of Games and Economic Behavior in the library and wrote a master’s thesis in cooperative game theory under Ewald Burger. He also persuaded the faculty to let him take mathematical economics as a minor, the first student allowed to do so.
Economics in the laboratory
From 1957 to 1967 Selten worked as an assistant to the economist Heinz Sauermann in Frankfurt, and the two began something new: running controlled experiments in which people made economic decisions in a laboratory setting. Their 1959 paper “Ein Oligopolexperiment” (An Oligopoly Experiment) was one of the very first in what became experimental economics. Selten had learned experimental technique by attending psychology lectures and taking part in psychological experiments himself.
Around 1958 he read Herbert Simon’s papers on bounded rationality and was immediately convinced that real people do not calculate like the perfectly rational agents of economic theory. He visited Simon in Pittsburgh in 1961. Over time he concluded that speculative theories of limited rationality were of little value: the actual structure of human decision-making had to be discovered by experiment. Experimental economics, now practised in laboratories around the world and used to test market designs and policies before they are introduced, owes much to this conviction.
Ruling out empty threats
Selten’s most famous idea came from an experiment. Studying a game in which a few firms compete over time, he found a natural solution but also many other Nash equilibria that made little sense. To pick out the sensible one, he defined subgame perfection in a 1965 paper. The Nobel committee explained it with an example. A monopolist threatens a price war if a rival enters its market. If the rival believes the threat, it stays out, and the threat costs nothing because it is never carried out, so this is a Nash equilibrium. But if a price war would be very costly for the monopolist, the threat is not credible: once the rival has entered, the monopolist will not actually fight. Subgame perfection requires that strategies make sense at every stage of the game, which rules out such empty threats.
Because subgame perfection was not always enough, Selten introduced a further refinement in 1975, the “trembling-hand” perfect equilibrium, which requires strategies to remain sensible even if players occasionally make small mistakes. The Nobel committee called subgame perfection the most fundamental refinement of Nash equilibrium.
How his ideas are used
Asking whether a threat or promise is credible turned out to be one of the most useful questions in economics. The Nobel committee noted that subgame perfection has direct significance for debates about credibility in economic policy, for the analysis of markets dominated by a few firms and for the economics of information. Competition economists use it to judge whether a dominant firm’s threats can really deter new rivals; economists studying central banks use it to explain why a bank that cannot credibly commit to fighting inflation will face higher inflation expectations; negotiators and diplomats use the same logic in thinking about deterrence. His ideas are a standard part of every game theory course, and game theory itself has spread across the social sciences and into biology.
From 1984 Selten taught at the University of Bonn, where he founded the Laboratory for Experimental Economics, the BonnEconLab. Bonn says the laboratory greatly raised the university’s international profile in economic research. Calling himself a “methodic dualist”, he worked both on normative theory, which assumes complete rationality, and on descriptive theories of how boundedly rational people actually behave, and with Gerd Gigerenzer he edited Bounded Rationality: The Adaptive Toolbox (2001).
Collaboration and career
In 1961 Oskar Morgenstern invited Selten to a game theory conference at Princeton, where he met Robert Aumann and Michael Maschler. At a small workshop in Jerusalem in 1965 he took part in heated discussions about John Harsanyi’s new theory of games with incomplete information, the start of a long partnership. Both joined a group of game theorists advising the US Arms Control and Disarmament Agency through the research firm Mathematica, where Selten worked on bargaining and models of nuclear deterrence. He and Harsanyi spent about eighteen years constructing A General Theory of Equilibrium Selection in Games, published in 1988.
After a visiting professorship at Berkeley in 1967–68 and his habilitation in Frankfurt, Selten taught at the Free University of Berlin from 1969 to 1972 and at Bielefeld University from 1972 to 1984, where he built a small institute of mathematical economics devoted to game theory, before moving to Bonn.
He was a generous mentor. At Bielefeld he began a close collaboration with Werner Güth, whom he regarded as in some sense his student, and younger scholars such as Eric van Damme came to him for advice; many went on to professorships across Europe and beyond. He served as president of the European Economic Association and was a fellow of the Econometric Society, an honorary member of the American Economic Association, a foreign honorary member of the American Academy of Arts and Sciences and a member of the German order Pour le Mérite for Sciences and Arts.
Esperanto, faith and private life
In 1959 Selten married Elisabeth Langreiner. They met through the Esperanto movement, and the international language remained an important part of their lives; he even wrote an introduction to game theory in Esperanto and in 2009 was the lead candidate of the German branch of Europe–Democracy–Esperanto in the European Parliament election. The couple had no children, though they would have liked to.
As a young man Selten left the Protestant church and remained unattached to any religion. His Jewish heritage came through his father, and it was as a “half-Jew” under Nazi racial laws that he was persecuted and lost relatives in the Holocaust. He described that persecution in his Nobel autobiography as a strong influence on his intellectual development.
Last years and legacy
Selten remained active in research to the end; from 2006 he led a long-term project on rationality in the light of experimental economics for the Union of German Academies of Sciences and Humanities. He was made an honorary senator of the University of Bonn in 2007. He died on August 23, 2016, in Poznań, Poland, at the age of 85, still Germany’s only winner of the economics prize.
His legacy runs in two directions. In theory, his test of credibility became a basic tool for anyone analysing competition, bargaining or policy. In method, his insistence on watching how real people decide helped turn economics into a partly experimental science, one in which new auction rules, market designs and policy ideas can be tried out in the laboratory before they affect millions of people.
Sources & further reading
Reinhard Selten, Biographical, NobelPrize.org · Press release: The Prize in Economics 1994, NobelPrize.org · University of Bonn mourns Reinhard Selten, University of Bonn press release, 2016 · Prof. em. Dr. Dr. h. c. mult. Reinhard Selten, BonnEconLab · Reinhard Selten obituary, Game Theory Society · Reinhard Selten, Wikipedia · Researched from the sources above and checked against them. Spotted an error? Tell us.
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