Home > Uncategorized > On the limits of game theory

On the limits of game theory

from Lars Syll

Back in 1991, when yours truly earned his first PhD​ with a dissertation on decision making and rationality in social choice theory and game theory, I concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the behavioural assumptions being made. On a political and social level, ​it is doubtful if the methodological individualism, ahistoricity and formalism they are advocating are especially valid.”

This, of course, was like swearing in church. My mainstream neoclassical colleagues were — to say the least — not exactly überjoyed.

For those of you who are not familiar with game theory, but eager to learn something relevant about it, I have three suggestions:

Start with the best introduction there is 

carmiachael

and then go on to read more on the objections that can be raised against game theory and its underlying assumptions on e.g. rationality, “backward induction” and “common knowledge” in

 

varo

and then finish off with listening to what one of the world’s most renowned game theorists — Ariel Rubinstein — has to say on the — rather limited — applicability of game theory in this interview (emphasis added):

What are the applications of game theory for real life?

That’s a central question: Is game theory useful in a concrete sense or not? Game theory is an area of economics that has enjoyed fantastic public relations. [John] Von Neumann [one of the founders of game theory] was not only a genius in mathematics, he was also a genius in public relations. The choice of the name “theory of games” was brilliant as a marketing device.
rubinThe word “game” has friendly, enjoyable associations. It gives a good feeling to people. It reminds us of our childhood, of chess and checkers, of children’s games. The associations are very light, not heavy, even though you may be trying to deal with issues like nuclear deterrence. I think it’s a very tempting idea for people, that they can take something simple and apply it to situations that are very complicated, like the economic crisis or nuclear deterrence. But this is an illusion. Now my views, I have to say, are extreme compared to many of my colleagues. I believe that game theory is very interesting. I’ve spent a lot of my life thinking about it, but I don’t respect the claims that it has direct applications.

The analogy I sometimes give is from logic. Logic is a very interesting field in philosophy, or in mathematics. But I don’t think anybody has the illusion that logic helps people to be better performers in life. A good judge does not need to know logic. It may turn out to be useful – logic was useful in the development of the computer sciences, for example – but it’s not directly practical in the sense of helping you figure out how best to behave tomorrow, say in a debate with friends, or when analysing data that you get as a judge or a citizen or as a scientist.

In game theory, what we’re doing is saying, “Let’s try to abstract our thinking about strategic situations.” Game theorists are very good at abstracting some very complicated situations and putting some elements of the situations into a formal model. In general, my view about formal models is that a model is a fable. Game theory is about a collection of fables. Are fables useful or not? In some sense, you can say that they are useful, because good fables can give you some new insight into the world and allow you to think about a situation differently. But fables are not useful in the sense of giving you advice about what to do tomorrow, or how to reach an agreement between the West and Iran. The same is true about game theory.

In general, I would say there were too many claims made by game theoreticians about its relevance. Every book of game theory starts with “Game theory is very relevant to everything that you can imagine, and probably many things that you can’t imagine.” In my opinion that’s just a marketing device.

Why do it then?

… What I’m opposing is the approach that says, in a practical situation, “OK, there are some very clever game theoreticians in the world, let’s ask them what to do.” I have not seen, in all my life, a single example where a game theorist could give advice, based on the theory, which was more useful than that of the layman.

Looking at the flipside, was there ever a situation in which you were pleasantly surprised at what game theory was able to deliver?

None. Not only none, but my point would be that categorically game theory cannot do it.

  1. August 31, 2017 at 7:38 am

    Game theory just was John von Neumann’s attempt to construct a new formal language better suited to describe social entities (not necessarily individuals), which use internal models – rather than being described like physic’s particles by eternal economic laws. As any other language it is not bound to be ‘ahistoric’ or dealing with irrelevant questions. Some of Neumann’s followers (including Nash) have then twisted its original towards a subfield of mathematics with neoclassical flavour. Nevertheless recent advances in simulation abiliities of (progressive) political economic theory promise a revival of the central ideas of game theory. For a more detailed treatment see the my first chapter of my book ‘Game Theory Relaunched’: https://www.intechopen.com/books/game-theory-relaunched

  2. Cmps
    August 31, 2017 at 1:21 pm

    Paranoid schizophrenia.

    • Cmps
      August 31, 2017 at 1:31 pm
      • September 28, 2017 at 11:49 am

        Thank you for the video. I met Nash at the 1st conference of the International Game Theory Society in Bilbao in 2001. A very impressive mathematition indeed – though initiator of a detour for game theory proper.

  3. Anonymous
    August 31, 2017 at 3:58 pm

    I don’t want to argue with your conclusion about game theory when applied to economics. I like the comparison of game theory to logic and fables. However, I think game theory has some applications, for example in determining bluffing frequencies in Poker. I leave it open to decide if poker is a practical situation.

    • September 28, 2017 at 11:05 am

      Yes, poker is. In his classic book John von Neumann explicitly refers to poker and even provides ideas for strategies. As can be read in his biographies he played poker himself, though he was not following his own theoretical prescriptions; he was more risk taking. Must have been the influence of a personal attitude to life: He also used to drive his car in the middle of the road and finally died from cancer because he didn’t believe in the health risk of x-rays visiting bomb experiments in Hawaii.

  4. Alan
    August 31, 2017 at 4:28 pm

    Amadae, S. M. Prisoners of Reason: Game Theory and Neoliberal Political Economy. New York, NY: Cambridge University Press, 2016.

  5. August 31, 2017 at 6:55 pm

    It seems to me logic is about discovering the truth, game theory about obscuring it.

    If you think economics is about making money by telling lies or being economical with the truth, there is not lot more to be said to you, but that “paranoid schizophrenia” might be an apt warning to others. Gaming is okay with one’s own surplus, but not with mass produced surplus produced for exchange to supply the needs of others, which one just happens to have access to or control of.

  6. September 1, 2017 at 4:05 pm

    Anatol Rapoport “The Use and Misuse of Game Theory” Scientific American (1962):

    “The most important achievement of game theory, in my opinion, is that game-theory analysis reveals its own limitations.”

  7. September 1, 2017 at 4:32 pm

    Having read Hardy Hannapi’s chapter I must concede the difference between gaming and theorising about it, which may have the honourable purpose of becoming able to detect when one is being gamed. I would like to say, too, that Hardy’s association of this with C E Shannon’s information theory is the most intelligent comment I have come across on Shannon, not excluding Gleick’s “The Information” (which doesn’t twig Shannon is measuring information capacity or content, not information). Re Hardy’s piece, however, Gleick’s comments on Kolmogorov are worth following up. Algol68 was much later, but embodies complexity in the form of four distinct levels of information, such that if one represents the environment of the other, errors in one can infect the other unless each has adequate error/gaming detection logic as well as algorithmic data processing.

    • September 28, 2017 at 11:34 am

      A major step that can enhance the versatility of the algorithmic tribe of game theorists is the possibility to turn programs into data and data into programs from within a program. One of the first languages that made that possible was the interpreter (no compiler) APL, my own preferred language. The emerging interplay (ancient Greek philosophers would have said ‘dialectics’) between models graved in stone (data) and models executed (programs) forces the scientist to be extremely precise. So good old Anatol (see above) was correct: It is this frontier determination that pushes the frontier.
      Thank you for hinting at Kolmogorov.

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