On the real-world irrelevance of game theory

6 January, 2018 at 13:28 | Posted in Economics | 3 Comments

It has been argued that some ascription of rationality plays a crucial role in particular in game theoretic modeling from a participant’s point of view. However, ascribing some kind of ideal reasoning process symmetrically to all players in the game, it becomes very unclear whether we as analysts can truly adopt a participant’s attitude to such an idealized interaction. After all, we are as a matter of fact only boundedly rational and not perfectly rational beings ourselves …

Game TheoryAccording to the way we normally use the common knowledge assumption along with that of symmetrically rational, and, for that matter, perfectly rational individuals, each and every individual is assumed to reason the same way about the game. We in effect have reduced the problem of reasoning in an interactive situation to the reasoning of a representative ideal individual who knows the game in full and shares this knowledge by virtue of the common knowledge assumption with each and every other participant. The game theorist and the participants in the game are in the same situation. Everybody comes exactly to the same conclusions as everybody else when thinking about the game before the specific play of the game starts.

In sum, as far as the reasoning itself is concerned we are not talking about some interactive reasoning practice. It is rather an ideal type of reasoning to which all ideal type reasoners are assumed to “converge.” It is the reasoning of a representative ideally rational individual.
 

Hartmut Kliemt

Game theory gives 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 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.

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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3 Comments »

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  1. The quote seems to provide a reasonable representation of game theory as understood by many economists. But there are game theorists who concern themselves with questions of convergence and hence the possibility of ‘rationality’ as understood by many economists.

    My reading of these works is that I find it hard to imagine any ‘invisible hand’ that would ensure uniqueness of convergence, and hence that the very narrow views of many economists could even possibly be correct.

    As to your remarks about science, they would seem consistent with viewing the development of science from an appropriate game-theoretic perspective.

    The cure may be more game theory, not less..

  2. I was flabbergasted to discover that economics dogma seems to be that non-zero-sum games and n-person games ( n > 2) have solutions, in general. Equilibria are not necessarily solutions. That is why naive players can often do better than so-called rational players. Culture matters, coalitions matter, psychology matters. One practical lesson from the study of n-person game theory should be this: Make friends. 🙂

    • It is rational to help your friends and hurt your enemies. If you want to be moral outside of church institutions, economics has no use for you. You are a microfoundation that does not count, you are irrational, you can be safely ignored.


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