The world’s first book on Subgame Consistent Economic Optimization from Shue Yan University


From left to right: Professor David Yeung and Professor Leon Petrosyan

The postulation that individually rational self-maximizing behaviors bring about group (Pareto) optimality constitutes one of the most appealing characteristics of the perfectly competitive market. Often the market is regarded as an efficient mean to allocate economic resources. However, in the presence of imperfect market structure, externalities, imperfect information and public goods the market would fail to provide an effective mechanism for efficient resource use. Asymmetric information, imperfect market structures and production externalities are widely present in today highly globalized economy. As a result though the market is perceived to be the most effective instruments in conducting economic activities it fails to guarantee its efficiency under many current arrangements. Not only inefficient market outcomes had appeared but gravely detrimental events such as world-wide financial crises and catastrophe-bound industrial pollution problems had also emerged under the conventional market system.

In the presence of market failures, appropriate optimization in economic activities provides an effective remedy for the maintenance of an efficient market system. The world’s first book on Subgame Consistent Economic Optimization by Professor David Yeung (Head of Business Administration, Hong Kong Shue Yan University) and Professor Leon Petrosyan provides a treatise on subgame consistent economic optimization. The book focuses on optimization of economic activities as an effective remedial measure to market failure. Hence the participants in an optimization scheme do not possess incentives to deviate from the previously adopted optimal behavior throughout the collaborative duration.

In economic activities which are dynamic in nature and contain stochastic elements, the condition of subgame consistency is required for a credible cooperative optimization solution. In particular, under subgame consistency, the optimality principle agreed upon at the outset must remain effective in any subgame starting at a later time with a realizable state brought about by prior optimal behavior.

Professor Vladimir Mazalov — Director of Applied Mathematical Research at the Russian Academy of Sciences – stated that “ the text is truly a world-leading treatise in the field of dynamically consistent economic optimization and a Russian classic in mathematics and economics,” and emphasized that “the text expanded L. V. Kantorovich’s* award-winning work in economic optimization significantly in the new directions of game-theoretic interaction, dynamic evolution, stochasticity and subgame consistency.”

* Leonid V. Kantorovich was awarded the Nobel Prize in Economics in 1975 for his contributions in optimal allocation of economic resources.

Source: March Issue 2012

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