Home > Uncategorized > On the real-world irrelevance of game theory

On the real-world irrelevance of game theory

from Lars Syll

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.

  1. Ed Sketch
    January 12, 2018 at 8:35 pm

    I spent my professional career negotiating deals with major economic consequences, and found no use for Game Theory in these real negotiations, though I did find some use for Iterative Prisonner’s Dilemma a la Axelrod around how one could create landscapes of trust for solving tough conflicts.

    The real problem with Game Theory is that it is autistic: it doesn’t have any real theory of mind of the other side. For instance: how would the other side play the Ultimatum Game? I have always assumed Game Theory was invented by people on the Asperger’s Spectrum (no disrespect to them) who couldn’t read other people and so invented a mathematical modeling approach in the absence of such ability. But I could be reading them wrongly….

    • January 13, 2018 at 1:18 am

      “Wrongly”, no. I have Asperger’s and you are right on!

      • Ed Sketch
        January 13, 2018 at 1:34 am

        Thanks, many of my friends have it too and they have great abilities but negotiating is not one of them.

  2. January 13, 2018 at 1:24 am

    Game theory is a part of mathematics. It is analytical and contains no empirical contents. But Lars should not blame game theory because it contains no empirical contents. Does he blame mathematics because it contains no empirical contents? Lars should argue the way the game theory is applied in analyzing economic phenomena.

    First, we should think where game theory is usefully applicable. In my opinion, game theory can be useful in analyzing interactions between small groups, e.g. two or three persons or groups. Economy is a large system of human agents. Modern economy can work probably when it counts more than 10 million people. An isolated economy of one million people can hardly support the present living standard. If one tries to apply game theory to this economy as a large system, one is doomed to fail.

    This does not exclude that there are some phases where game theory can be successfully applicable. Late professor Masahiko Aoki has successfully analysed conflictual interests between managers and workers. This was possible because the conflict can be described as game of two parties.

    Second, we should distinguish several types of game theory. As I have argued above, classical game theory is applicable only for small system. However, there are another kind of game theory called evolutionary game theory. This theory was first applied to analyse the conditions that a new specie can survive in a given ecological system. This is the successful case of analyzing a process in a large system. (Note that this is not the analysis of large system itself.) Another type of game theory is called cognitive games. They are play games of applying retrospective logic infinitely. Cognitive game provides many intellectually interesting games, but society does not work on this repetitive logic. Economy works with much more “conventional” logic and reasoning. In this sense, Herbert Gintis in his The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences is completely wrong.

    To blame game theory in general is a misfire. Real world economics cannot persuade people with this kind of unreasonable accusations. Lars can blame the widely shared misunderstanding that game theory is a part of economics. Game theory is a rare example of mathematics that economics produced but it is not economics or a part of economics. This is a very important difference.

    • Rob Reno
      January 13, 2018 at 2:59 pm

      Game theory is just as pernicious at spinning just so stories in the field of biology as it is in economics.

  3. January 13, 2018 at 2:49 am

    One of my biggest problems with game theory assumptions is that it is a rather large leap to imagine that people in most “game” situations (exception: the prisoner’s dilemma) will always just want to win/optimize.

    I think it is equally likely, if not more likely, that individuals finding themselves in decision situations that involve a competitive scenario will step back and say, “Hey, you also have some legitimate interests to protect, just as I do. Maybe we find a path forward that will be agreeable to us both!

    Math is fun, but analysts need to remind themselves frequently that they should never let the mathematical tools they love become an end in itself…if your true purpose is ultimately to edify.

  4. January 16, 2018 at 6:56 am

    This is the abstract of the paper, “Against Game Theory” by Gale M. Lucas, Mathew D. McCubbins, and Mark Turner. A psychologist, attorney, and cognitive scientist. The paper knocks the stuffing out of game theory in the social sciences.

    People make choices. Often, the outcome depends on choices other people make. What mental steps do people go through when making such choices? Game theory, the most influential model of choice in economics and the social sciences, offers an answer, one based on games of strategy like chess and checkers: the chooser considers the choices that others will make and makes a choice that will lead to a better outcome for the chooser, given all those choices by other people. It is universally established in the social sciences that classical game theory (even when heavily modified) is bad at predicting behavior. But instead of abandoning classical game theory, those in the social sciences have mounted a rescue operation under the name of “behavioral game theory.” Its main tool is to propose systematic deviations from the predictions of game theory, deviations that arise from character type, for example. Other deviations purportedly come from cognitive overload or limitations. The fundamental idea of behavioral game theory is that, if we know the deviations, then we can correct our predictions accordingly, and so get it right. There are two problems with this rescue operation, each of them fatal. (1) For a chooser, contemplating the range of possible deviations, as there are many dozens, actually makes it exponentially harder to figure out a path to an outcome. This makes the theoretical models useless for modeling human thought or human behavior in general. (2) Modeling deviations is helpful only if the deviations are consistent, so that scientists (and indeed decision-makers) can make predictions about future choices on the basis of past choices. But the deviations are not consistent. In general, deviations from classical models are not consistent for any individual from one task to the next or between individuals for the same task. In addition, people’s beliefs are in general not consistent with their choices. Accordingly, all hope is hollow that we can construct a general behavioral game theory. What can replace it? We survey some of the emerging candidates.

    I suggest you read the article. Particularly the alternatives offered for game theory in the social sciences.

    • Rob Reno
      January 16, 2018 at 4:21 pm

      Thanks Ken for another excellent resource. I just hope I can keep up (at least a little!) with all the great resources shared on this site ;-)

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