Home > Uncategorized > Game theory — a scientific cul-de-sac

Game theory — a scientific cul-de-sac

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 those guidelines imply are especially valid for explaining real-world decision-making.”

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

Half a century ago there were widespread hopes game theory would provide a unified theory of social science. Today it has become obvious those hopes did not materialize. This ought to come as no surprise. Reductionist and atomistic models of social interaction — such as those mainstream economics and game theory are founded on — will never deliver sustainable building blocks for a realist and relevant social science. That is also — as yours truly argues in this article — the reason why game theory never will be anything but a footnote in the history of social science.

Lars Pålsson Syll_06Heavy use of formalism and mathematics easily foster the view that a theory is scientific. But although game theory may produce ‘absolute truths’ in imaginary model worlds, in the real world the game theoretic models are nothing but fables. Fables much reminiscent of the models used in logic, but also like them, delivering very little of value for social sciences trying to explain and understand real-life phenomena. The games that game theory portrays are model constructs, models without significant predictive capacity simply because they do not describe an always much more complex and uncertain reality …

Although some economists consider it useful to apply game theory and use game theoretical definitions, axioms, and theorems and (try to) test if real-world phenomena ‘satisfy’ the axioms and the inferences made from them, we have argued that that view is without warrant. When confronted with the real world we can (hopefully) judge if game theory really tells us if things are as postulated. The final court of appeal for models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, model building is little more than hand-waving that give us rather little warrant for making inductive inferences from the model world to the real world.

The real challenge in social science is to accept uncertainty and still try to explain why different kinds of transactions and social interactions take place. Simply conjuring problems away by assuming patently unreal things and treating uncertainty as if it was possible to reduce to stochastic risk, is like playing tennis with the net down. That is not the kind of game that scientists working on constructing a relevant and realist science want to play.

  1. Yoshinori Shiozawa
    November 4, 2019 at 1:44 am

    If “[h]eavy use of formalism and mathematics easily foster the view that a theory is scientific,” it is necessary to train economists to judge a theory not by its appearance but by its contents. To denounce mathematics itself is not a right way to redress economics to a truer science.

    Do not spoil amateurs of economics by inducing them to judge economics by its appearance. Whether a theory is expressed mathematically or not is irrelevant to the truthfulness of the theory itself. Lars Syll is generating an attitude among people who are interested in economics to reject all economic theories that use mathematics. There are many non-mathematical “theories” that are void of contents and quite ridiculous. There are also theories expressed in mathematical forms but clarifies truth of certain aspects of economies.

  2. Yoshinori Shiozawa
    November 4, 2019 at 2:16 am

    Readers of this column, please read Geoffrey Hodgson’s new book “Is There a Future for Heterodox Economics? / Institutions, Ideology and a Scientific Community.” In a section of Chapter 5 Heterodox Economics as a Scientific Community he raises a question of The Problem of Quality Control (pp.151-153). I cite some sentences from the section.

    >>The maintenance of high quality has become a particularly serious problem within the community of heterodox economists, for several reasons.

    >>Unrestricted tolerance of diversity within heterodoxy leads to a failure of quality control: anything goes. If things go too far, scholars in a broad heterodox communities will lack sufficient rigorous criticism and scepticism to sharpen and improve their arguments, …

    >>Groups that define themselves in opposition to orthodoxy can attract people who misunderstand the mainstream, oppose it on faulty grounds or propose flaky alternative theories. Even if the opposition is right and orthodoxy is wrong, the opposition can be seriously impaired by low-quality allies i its ranks.

    Lars Syll is accelerating the degradation of heterodox people’s arguments by his inaccurate and extremely rough criticism of the mainstream economics.

  3. November 4, 2019 at 11:16 am

    While I accept the drift of what Yoshinori is trying to say, it is a bit rich coming from him when he has failed to acknowledge, never mind discuss the draft paper about the complex logical foundations of science and economics I sent him on 25/01/18. How can one improve something when one does know what formulations cause other people difficulties?

    A similar criticism can be levelled at Lars, of course, when he fails to respond to our queries about what he is saying. Here my concern is that games theory is not just an insignificant cul-de-sac. A few rich people do play games with our economies, but economists theorising and experimenting with the type of games they play is recruiting others and providing them with guns and ammunition.

    • November 6, 2019 at 3:41 pm

      It seems I owe Yoshinori a public apology. When my computer was changed recently, so was my email provider, who has generated an “Important” file I had never noticed. Now I have noticed it, I found in it the correspondence with Yoshinori whose absence I had been complaining about. So sorry, Yoshinori. I have found your chapter on evolutionary economics and Weaver’s 1947 paper on science very interesting, though both missed the point of Shannon’s 1948 paper on communicating information, which was itself some years before the articulation c.1968 of PID control via parallel information circuits. Deriving that as a way of classifying and understanding the financial ‘shadow’ economy as a control servo is what the derivation in my paper had been all about.

  4. ghholtham
    November 4, 2019 at 12:39 pm

    Lars wants an approach to explain everything before he will allow it to explain anything. Game theory is not a theory of everything but it can be useful in certain situations. For example the British government consulted game theorist K.Binmore in designing the last auction process for the radio spectrum. It is generally acknowledged that the result was much higher prices paid and much higher revenue earned for the public purse.

    • November 4, 2019 at 5:44 pm

      As if auctions were very typical of economics in general! Well, it’s not. It’s rather amusing that every time game theory is criticized, its defenders come dragging with the alleged successful APPLICATION of it in auctions. But even there, the story is no clear success story!
      I humbly suggest reading e.g. “Progress in economics: Lessons from the spectrum auctions”
      by Anna Alexandrova & Robert Northcott (in Harold Kincaid & Don Ross (eds.), The Oxford Handbook of Philosophy of Economics. Oxford University Press. pp. 306–337 (2009))

      • Rob
        November 4, 2019 at 10:23 pm

        I humbly suggest reading e.g. “Progress in economics: Lessons from the spectrum auctions”
        by Anna Alexandrova & Robert Northcott (in Harold Kincaid & Don Ross (eds.), The Oxford Handbook of Philosophy of Economics. Oxford University Press. pp. 306–337 (2009)) ~ Lars

        I sure wish you would summarize the core issues here for those who don’t find it easy to get access to Alexandrova & Northcott (2009) as it would add great value to this exchange.

      • Rob
        November 4, 2019 at 11:09 pm
  5. Robert Locke
    November 5, 2019 at 9:51 am

    Lars, I have read into this debate about how to turn economics into a monotheistic science for decades, and have participated in the debate, as it pertained to the study of history, over forty years ago. No progress of note has been made. In the 1960s and 1970s, when econometricians and historians trained in neoclassical economist tried to turn economics, with these disciplines, into a science, they failed and we have wallowed around in endless discussions ever since. What the historians do is record the social scientists’s views as nonconclusive and study the opinions of what participants in the economy think are major problems in the eras in which they live, including the present. Thackeray had this discussion right — Vanity Fair.

  6. Gerald Holtham
    November 5, 2019 at 3:36 pm

    Here is the conclusion to Alexandra and Northcott’s piece, verbatim:

    “The design of the FCC spectrum auction is worthy of celebration. It was a tremendously sophisticated (and lucrative) piece of technology—on a par with, say, a laser or a jet airplane. Economic theory can be correspondingly proud of its contribution to this success. But the sting in the tail from the story is this: that it is only through such contributions that theory partakes of scientifi c progress. Its only glory is via its utility to those working elsewhere.”

    I couldn’t agree more. As I said, Lars won’t allow the utility of anything that does not explain everything everywhere. That is why he is such a nihilist. There are no general laws in economics. None. There are models that can be very useful sometimes in some applications.

    • November 5, 2019 at 5:18 pm

      And here is what Alexandra & Northcott actually writes in their paper:

      “As we have seen, in the case of
      the spectrum auction at least, empirical warrant does not accrue to the theoretical model. The only confirmed causal claim is with respect to the mechanism as
      a whole … That causal claim is made only by the mechanism, of
      course, not by any of the auction-theory models. This is why the theoretical models garner no support here. Rather, support accrues only to the final mechanism
      used in the actual auction, and, thus, it is only that final mechanism that has a
      claim to be close to the truth … On any standard account of explanation, for
      a theory to do this it must have empirical warrant, and, given the essential role of
      the experimental testbeds, that is just what close analysis of the spectrum auctions
      casts into doubt. Thus, an auction model does not, in conjunction with initial
      conditions, entail the successful auction outcome, as would be required on the
      deductive-nomological view. Neither does it provide the cause or mechanism that
      produced that outcome, as only the final composite auction procedure achieves
      that (…) Although it might have looked casually as if, as the contemporary publicity
      claimed, the theoretical auction models indeed explained the outcome, as we have
      seen, the reality was more complicated. Judging by the example of the spectrum
      auction, therefore, there is ample reason to be cautious about attributions—after
      the fact and from a distance—of explanatory success to economic theory. When
      push came to shove and an actual working mechanism was required, it turned out
      not to be so (…)To repeat: If the example of the spectrum auction is typical, then the only notion of progress in economics that is empirically warranted is of the context-specific engineering variety …The hard-nosed corollary is that theoretical developments that offer little prospect of being useable by economic engineers are of correspondingly little scientific value.”

      Yours truly and Gerry still — obviously — disagree on the utility of game theoretical modelling. But at least we seem to agree on one thing: “There are no general laws in economics. None.”

    • Frank Salter
      November 6, 2019 at 1:37 pm

      There are general laws. Okun’s law is a case in point.

  7. Gerald Holtham
    November 5, 2019 at 6:56 pm

    A&N are simply saying that you can’t distinguish the necessary elements of a joint set of causes. An auction worked; it was proposed by someone on the basis of game theory. Was game theory necessary or sufficient for arriving at that auction model and would another auction model have worked as well? Would the same theory have given a bad auction structure in different circumstances? These are questions to which no definitive answer can be given. Lars seems to regard that as demonstrating that game theory is a cul de sac. I prefer to focus on the fact that it was used, as a matter of fact, to arrive at a process that worked, as a matter of fact. I am really not sure where the point of difference is. No one believes that game theory is a general method for determining all human interactions under uncertainty. But the generalisation that says game theory has no use at all is refuted by a single observation. We have one, at least.

  8. Yoshinori Shiozawa
    November 6, 2019 at 3:04 am

    Gerald Holtham on November 5, 2019 at 6:56 pm Reply:

    “Lars won’t allow the utility of anything that does not explain everything everywhere. That is why he is such a nihilist. There are no general laws in economics. None. There are models that can be very useful sometimes in some applications.”

    Lars Syll admits that “There are no general laws in economics. None.” Ant yet , as Gerald Holtham suggests, Lars is searching general laws and rejects all efforts in economics as that does not satisfy his criteria of being science. Almost all of his criticisms against mainstream (neo-classical) economics are right. But, because of his bad philosophy of science, he cannot suggest even a possible way out from neoclassical confused and perverted world. This must be the main reason why Lars is thought to be a nihilist.

    • Frank Salter
      November 6, 2019 at 1:13 pm

      I am in total agreement.

  9. Gerald Holtham
    November 6, 2019 at 5:26 pm

    There are empirical regularities in economics; Okun’s “law” might be an example. But they are not laws in the sense that they are derived from a fundamental theory that gives us confidence that they will always apply, Okun’s relation was derived for the United States. It will look a bit different in countries with different ways of recording unemployment and supporting the unemployed.

  10. Ken Zimmerman
    November 9, 2019 at 3:01 pm

    Seems a lot of fuss over nothing. Game theory is a “way” to express formally and precisely events and actions that can never be expressed formally and precisely. So, in some instances, impossible to determine in advance which game theory may be a useful tools; in other instances not so. All empirical questions calling for empirical answers.

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