Roberto Serrano: Any international conflict can be studied through the lens of game theory

Roberto Serrano, the Harrison S. Kravis University Professor of Economics at Brown University, is set to bring his expertise in microeconomic theory and game theory to NEWTON University next month. His lecture, 'A First Approach to Cooperative Game Theory with Economic and Political Applications,' will explore the intricate dynamics of coalition formation and operation among various players, be they nations, corporations, or individuals. With a career that includes significant contributions to mechanism design, bargaining theory, and risk management, Professor Serrano will offer a wealth of valuable perspectives on the multifaceted world of game theory. Whether you're a seasoned economics student or can't tell your Shapley Value from your Nash Equilibrium, this lecture is not to be missed. 

Professor Serrano, thank you for taking the time to answer some questions for NEWTON Today. For the benefit of students who might be unfamiliar with terms, could you briefly explain what cooperative game theory is and how it differs from non-cooperative game theory?

In noncooperative game theory, the actors are individual players who strategize against each other. The agreements they reach, therefore, must be self-enforcing. In cooperative game theory, the actors are coalitions or groups of players, who may sign binding agreements and  try to understand the conditions under which cooperation is possible.

Does cooperative game theory play a role in today's economic landscape? Are there any real-world examples you could share?

Absolutely. For example, the entire theory of matching, designed to match up doctors to hospitals, or kidney donors to patients, are illustrations of cooperative thinking, with the identification of coalitionally stable allocations.

How does cooperative game theory apply in market settings? Are there any examples of industries or corporations using cooperative game theoretic concepts to reach mutually beneficial agreements (or, indeed, failing to do so)?

Sure, you can think of an economy as a cooperative effort among the different parties involved. There is an important connection between different cooperative solution concepts and the competitive market equilibrium, as the lecture will discuss.

How is cooperative game theory applied in political scenarios? Is it used in the formation of political coalitions or voting systems?

Yes, indeed, and the lecture will provide several applications of this.

Are there instances where cooperative game theory has influenced policy-making or international diplomacy?

Yes, the design of matching markets described above are beautiful applications to the real world of this theory. Any international conflict can be studied with this approach, at least to understand what one should or should not expect out of it, if players are rational.

For students interested in diving deeper into cooperative game theory following your lecture, what resources would you recommend?

There are many, but my favourite recommendation would be a beautiful book by Moulin, entitled "Cooperative Microeconomics". I also wrote a survey article "Cooperative Games: Core and Shapley Value" in 2009, found on my website, that the interested student could consult.

Finally, what is the main takeaway you hope attendees will have from your lecture at NEWTON University?

That cooperative game theory provides an interesting tool box of analysis, to complement other tools that the students may have seen, such as noncooperative game theory, decision theory, or microeconomics.

Professor Serrano, thank you very much for talking to me today.