The Victims of Game Theory

3 December, 2017 at 20:45 | Posted in Economics | 6 Comments

gameImagine you and someone you do not know can share $100. It is up to you to propose how to divide the $100 between the two of you, and the other player will need to accept or reject your proposal. If he rejects the proposal, neither of you will receive anything. What sum will you offer the other player?

I have data on the choices of about 12,300 people, most of them students, who were asked this question. Nearly half of the participants (49%) offered the other player the fair offer of $50 …

The participants in the experiment who make the embarrassing offer of just $1 because they learned this in a game theory course are again the distinguished members of the Victims of Game Theory organization. And if they played the game in real life, their achievements would be inferior to those who had not become wise by studying game theory.

Ariel Rubinstein

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  1. That’s an interesting experiment. If I knew the rules and someone offered me less than $40 I probably would reject it, even knowing I would get nothing. But if it was for a million dollars and the other person offered $100,000? I would take it even though I would think very bad things about their character. I like to think I would offer half of a windfall such as that. Lars, if there is any chance you will be repeating this experiment, please keep me in mind šŸ™‚

  2. Amadae ‘Prisoners of Reason’ provides a really interesting critique of game theory in this context
    http://www.cambridge.org/gb/academic/subjects/politics-international-relations/political-theory/prisoners-reason-game-theory-and-neoliberal-political-economy?format=PB#J88WGY7sqkR691kC.97

  3. With government subsidized* private credit/debt creation the rich are the most so-called worthy of what is, in essence, the PUBLIC’S CREDIT but for private gain.

    Yet, how many of the non-rich support our current system so that THEY, in turn, might loot those less so-called credit worthy than themselves?

    Thus our government subsidized credit system encourages “trickle-down” oppression of the poorer by the richer.

    Thus one might say that the entire Western world is victim to game theory.

    *e.g. Government provided/backed insurance of private liabilities, including privately CREATED liabilities; exclusive access to inherently risk-free central bank checking accounts for the banks instead of to all citizens, non-negative yields on inherently risk-free sovereign debt, etc.

    • Yes, the rules of capital allocation are inherently ritualistic; see the following slide from a presentation by Professor Mehrling, https://twitter.com/DanielaGabor/status/794227660528451584 :


      What kind of a society is it?

      Central coordinating role of money as a means of daily settlement of maturing promises

      Central coordinating role of finance as a means of daily valuation of future promises

      Central coordinating role of banking as a means of daily allocation of credit, who gets purchasing power for their vision of the future

      Processes of settlement/valuation/allocation as central rituals, reproducing modern society and the relationship of each individual to it

      Institutions of settlement/valuation/allocation as the (largely hidden) infrastructure of modern financialized society

      I say: change the rituals. Allocate credit to everyone in the form of a basic income. Deobfuscate the vast scale of money creation, with little unwanted inflation as predicted by mainstream models ..

  4. I wonder what was taught in the game theory courses? In order to apply game theory one would have to make some assessment of the stranger’s utilities. Suppose that utility is determined by the immediate monetary gain and that we believe that everyone would accept a ‘fair’ offer. Then the maximin strategy for ‘you’ is to offer 50%, since any less risks refusal. The maximin for the stranger is to accept anything. If they refuse something we can say that they are not ‘rational’.

    On the other hand, suppose that we regard ourselves as a member of a community with some notion of fairness, and who regards it a duty to punish those who breach its norms. If we value our membership it might well be rational to reject an unfair offer.

    It is not clear to me how game theory as such comes off badly, merely the notion that only money has value.


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