Pure game theory — an irrelevant tautology

31 October, 2017 at 18:13 | Posted in Economics | 13 Comments

Applied game theory is a theory of real-world facts, where we use game theoretical definitions, axioms, theorems and (try to) test if real-world phenomena ‘satisfy’ the axioms and the inferences made from them. When confronted with the real world we can (hopefully) judge if game theory really tells us if things are as postulated by theory.

like-all-of-mathematics-game-theory-is-a-tautology-whose-conclusions-are-true-because-they-are-quote-1But there is also an influential group of game theoreticians that think that game theory is nothing but pure theory, an axiomatic-mathematical scientific theory that presents a set of axioms that people have to ‘satisfy’ by definition to count as ‘rational.’ Instead of confronting the theory with real-world phenomena it becomes a simple matter of definition if real-world phenomena are to count as signs of ‘rationality.’

This makes for ‘rigorous’ and ‘precise’ conclusions — but never about the real world. Pure game theory does not give us any information at all about the real world. It gives us absolutely irrefutable knowledge — but only since the knowledge is purely definitional.

Mathematical theorems are tautologies. They cannot be false because they do not say anything substantive. They merely spell out the implications of how things have been​ defined. The basic propositions of game theory have precisely the same character.

Ken Binmore

Pure game theorists, like Ken Binmore, give us analytical truths — truths by definition. That is great — from a mathematical and formal logical point of view. In science, however, it is rather uninteresting and totally uninformative! Even if pure game theory gives us ‘logical’ truths, that is not what we are looking for as scientists. We are interested in finding truths that give us new information and knowledge of the world in which we live.

Scientific theories are theories that ‘refer’ to the real-world, where axioms and definitions do not take us very far. To be of interest for an economist or social scientist that wants to understand, explain, or predict real-world phenomena, the pure theory has to be ‘interpreted’ — it has to be ‘applied’ theory. A ‘pure’ game theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and do not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.

Pure game theory has no empirical content whatsoever. And it certainly has no relevance whatsoever to a scientific endeavour of expanding real-world knowledge.

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Science and reason

29 October, 2017 at 09:44 | Posted in Theory of Science & Methodology | 2 Comments

scrivenTrue scientific method is open-minded, self-critical, flexible. Scientists are, in short, not as reasonable as they would like to ​think themselves. The great scientists are often true exceptions; they are nearly always attacked by their colleagues for their revolutionary ideas, not by using the standards of reason, but just by appealing​ to prejudices then current.​ Being reasonable takes great skill and great​ sensitivity to the difference between “well-supported” and “widely accepted.” It also takes great courage, because it seldom corresponds to being popular.

Admati on ‘the banker’s new clothes​’

29 October, 2017 at 08:29 | Posted in Economics | 1 Comment

 

Så länge skutan kan gå

28 October, 2017 at 10:36 | Posted in Varia | Comments Off on Så länge skutan kan gå

 

Mästerligt!!

Chicago economists — people who have their heads fuddled with nonsense

27 October, 2017 at 13:06 | Posted in Economics | 2 Comments

joblossMainstream macroeconomics has always had problems with the notion of involuntary unemployment. According to New Classical übereconomist Robert Lucas, an unemployed worker can always instantaneously find some job. No matter how miserable the work options are, “one can always choose to accept them,” according to Lucas:

KLAMER: My taxi driver here is driving a taxi, even though he is an accountant, because he can’t find a job …

LUCAS: I would describe him as a taxi driver [laughing], if what he is doing is driving a taxi.

KLAMER: But a frustrated taxi driver.

LUCAS: Well, we draw these things out of urns, and sometimes we get good draws, sometimes we get bad draws.

Arjo Klamer

In New Classical Economics unemployment is seen as a kind of leisure that workers optimally select. In the basic DSGE models used by these economists, the labour market is always cleared – responding to a changing interest rate, expected lifetime incomes, or real wages, the representative agent maximizes the utility function by varying her labour supply, money holding and consumption over time. Most importantly – if the real wage somehow deviates from its “equilibrium value,” the representative agent adjust her labour supply, so that when the real wage is higher than its “equilibrium value,” labour supply is increased, and when the real wage is below its “equilibrium value,” labour supply is decreased.

In this model world, unemployment is always an optimal choice to changes in the labour market conditions. Hence, unemployment is totally voluntary. To be unemployed is something one optimally chooses to be.

Yours truly has to admit of being totally unimpressed by this kind of New Classical macroeconomic quackery. I guess Keynes would have felt the same:

The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years … 0616_ig-john-maynard-keynes_1024x576Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.

John Maynard Keynes (1929)

Text och musik

26 October, 2017 at 10:49 | Posted in Economics | 1 Comment

radioI en tid när ljudrummet dränks i den kommersiella radions tyckmyckentrutade ordbajseri och fullständigt intetsägande pubertalflamsande tjafs har många av oss mer eller mindre gett upp. Radion, som en gång i tiden var en källa till både vederkvickelse och reflexion har degenererat till en postmodern ytlighetsavgud.

Men det finns ljus i mörkret!

I programmet Text och musik med Eric Schüldt — som sänds på söndagsförmiddagarna i P2 mellan klockan 11 och 12 — kan man lyssna på seriös musik och en programledare som har något att säga och inte bara låter foderluckan glappa.

En lisa för själen.

I förra söndagens program spelades bland annat denna vackra georgiska sång:

A memorable evening with Joan Robinson

25 October, 2017 at 22:32 | Posted in Economics | 1 Comment

After dinner – by now I had had a couple of glasses – I decided I had to make something of this once-in-a-lifetime opportunity to engage with one of my heroes.  Joan … was in the armchair again, and I sat down on the floor facing her at her feet.  I began by asking her what it was like being a student at Cambridge back in the Twenties.  After recalling the lectures of the literary critic I. A. Richards, she moved on to Wittgenstein and Sraffa and their weekly one-on-one discussions over tea … Soon the whole room of economists was debating the meaning of Tractatus Logico-Philosophicus. And, bizarrely, something was about to happen that would change the course of my life.

Joan-Robinson-What-Are-The-Questions-And-Other-EssaysAs the debate continued it occurred to me that perhaps no one in the room had really read the Tractatus.  Joan Robinson stayed out of the debate and, although I was still sitting at her feet, I now had my back to her. Then suddenly from behind me her loud raspy voice broke into the conversation. Here are her exact words.

“The world is all that is the case.  The world is the totality of facts, not of things.  The world is determined by the facts, and by their being all the facts.  For the totality of facts determines what is the case, and also whatever is not the case.  Those are the first four propositions of the Tractatus.  I’ve never been able to understand them.”

It was a magic moment for me – the relaxed integrity of her intellect was so plain to see.  And such a contrast to the outcome of my conversation sixteen years before.  I wasn’t yet in a position where I could change my life’s course, but in time I was, and if it hadn’t been for that evening with Joan Robinson and the Tractatus I would never have become an economist.

Edward Fullbrook

Economists are missing the big picture

25 October, 2017 at 14:57 | Posted in Economics | 2 Comments

 

Trump — a reckless, untruthful, outrageous, incompetent & undignified buffoon

25 October, 2017 at 09:28 | Posted in Politics & Society | 2 Comments

 

INET conferencing​ beyond disappointment

24 October, 2017 at 19:33 | Posted in Economics | 7 Comments

I’m sitting in a coffee shop opposite Haymarket Station in Edinburgh. Just up the road, the Institute for New Economic Thinking (INET) is holding its conference. I’m supposed to be there, as I was yesterday and the day before. But I am not at all sure I want to go. The last two days have left a very bitter taste.

Boring PresentationThis conference, grandly entitled “Reawakening”, is supposed to be a showcase for the “new economic thinking” of INET’s name. I hoped to hear new voices and exciting ideas …

Not a bit of it. In the last two days we have had panel after panel of old white men discussing economic theories developed by old white men, many of them dead. Economic beliefs that I thought had been comprehensively debunked have reappeared, dressed up as “new thinking” …

I returned for a panel on debt traps, public and private – and I despaired again … Oh dear. It went from bad to worse.

Pontus Rendahl … claimed that “banks don’t create money” and explained that Barclays creates its own currency “pegged at par to the central bank currency”, which apparently only works if the central bank “is complicit”. The Bank of England debunked this nonsense back in 2014. Why is it still being presented now? …

This is not “new thinking”, it is the same old elite economists’ voodoo in different clothes.

Frances Coppola

It is indeed difficult not to agree. A lot of the stuff presented at INET conferences are just regurgitations of the same old mainstream dogma. And to even for a second think that a visionless neoclassical economist like Rendahl should have anything to do with new thinking in economics is of course totally gobsmacking!

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