Home > Uncategorized > Game theory — theory with little substantive content

Game theory — theory with little substantive content

from Lars Syll

binmoreratdecI don’t see that we are even entitled to assume that reality accords to some model that humans are able to envisage … To say that Pandora knows what decision model she is facing can therefore be taken as meaning no more than that she is committed to proceeding as though her model were true …

The price of abandoning psychology for revealed-preference theory is therefore high. We have to give up any pretension to be offering a causal explanation of Pandora’s choice behavior in favour of an account that is merely a description of the choice behavior of someone who chooses consistently. Our reward [sic!] is that we end up with a theory that is hard to criticise because it has little substantive content.

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.

For certain specific, local problems, game theory is a very nice way of thinking about how people might try to solve them, but as soon as you are dealing with a general problem like an economy or a market, I think it is difficult to believe that there is full strategic interaction going on. It is just asking too much of people. Game theory imposes a huge amount of abstract reasoning on the part of people …

That is why I think game theory, as an approach to large scale interaction, is probably not the right way to go.

Alan Kirman

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 here — 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. bruceolsen
    October 5, 2020 at 11:37 pm

    Background: I’m new here, and not an academic.

    This is a bit tangential to your post, but I’m looking for a more concrete description of the issues with neoclassical economics (as well as techniques such as game theory that are used in its pursuit and expression).

    There are a number of issues impacting society about which most people are ill-informed (or simply lied to) and I’m making it my mission to shine some light on the errors, in plain English, for lay readers. Neoclassical economics is part of the puzzle.

    I’m about 70, so I don’t have the time or resources to ferret through the multitude of books/articles/blogs discussing the inadequacy of neoclassical economics.

    Thanks for your consideration.

    • Econoclast
      October 6, 2020 at 11:42 pm

      Where the profession of economics is concerned, I think being new is good. Not being an academic is even better. I am 85 and could choke to death on turgid academic prose, if I so chose.

      I recommend two books out of many very good ones: Steve Keen’s Debunking Economics: The Naked Emperor Dethroned and Richard Wolff’s Contending Economic Theories: Neoclassical, Keynesian and Marxian. The former is more technical.

      One thing to keep in mind is what the neoclassical considers “external” to its market fundamentalism: money, people, and the planet. These omissions do more to define the absurdity of the orthodoxy than a million pages of technical papers.

      Just this morning a friend asked what is the difference between environmental economics and ecological economics. My simple response is that the former (rooted in the orthodoxy) specifies that the environment is a subset of the economy, whereas the latter (a heterodoxy) specifies that the economy is a subset of the environment. Huge difference.

      • bruceolsen
        October 7, 2020 at 6:03 am

        Thanks so much for the input. I’ve read a little by Steve Keen but nothing by Richard Wolff. They’re now on my list.

        I’ve read some of the recent papers by David Autor and Daron Acemoglu about the influence of automation on labor. Autor especially seems to have an unjustified belief that automation will likely continue to create jobs. So one of my purposes is to understand enough about the neoclassical planet their models inhabit so I can articulate the several ways in which they’re studying the wrong thing (and reaching the wrong conclusions).

    • E
      October 8, 2020 at 5:16 pm

      I inadvertently omitted one other essential favorite critic of neoclassical, Michael Hudson. His J is for Junk Economics is a good read.
      I’m not sure the criticism of neoclassical (what I prefer to call market fundamentalism to reflect its nature as a quasi religion) will help you in your automation/jobs issue, as simple examination of the data may tell us as much as technical or philosophical analysis can. And, with the most uncertain future I’ve seen in more than 8 decades, I’m not sure anything can.

  2. Yoshinori Shiozawa
    October 6, 2020 at 4:57 am

    Although it may not be incorrect to classify Alan Kirman as mainstream economist, because he has a glorious career, it is extremely misleading to do so, because Alan Kirman is one of most remarkable and most productive economists outside of neoclassical strand. It is true that he started his career as a neoclassical microeconomist but he soon became doubtful and critical of neoclassical economics in particular and of mainstream economics in general. He continuously tried to develop new economic theories by various means including empirical study on Marseille fish market as well as emerging kiosk market in Moscow (see the interview by Erasumus Journal for Philosophy and Economics). He refutes general equilibrium, optimization and independent agents. If we adopt the definition/characterization of Amsperger and Varoufakis, Alan KIrman is not a neoclassical economist.

    The citation from the Interview is also misleading. Kirman added this just after the part cited by Lars Syll:

    But I still think that a really important insight comes out of game theory: as soon as people start to worry about the fact that what they do has an impact on what
    other people do (and they start to think about it), that makes life very

    • October 6, 2020 at 8:50 am

      Coming immediately after our exchange on Micro and Macro, this is very well picked up, Yoshinori. The first part of Kirman’s quote rejects the Micro use of game theory, but the bit you add accepts its relevance as a Macro theory.

      The macro issue is whether economics is a game. It may look like it to those rich enough to gamble in the FIRE economy, but real economics is about love: commitment to “looking after the kids” and the home we all live in.

  3. Yoshinori Shiozawa
    October 7, 2020 at 6:36 pm

    Dave, you again misread Alan Kirman and my comment.

    In the part that Lars Syll has cited, Alan Kirman argued:

    For certain specific, local problems, game theory is a very nice way of thinking about how people might try to solve them, but as soon as you are dealing with a general problem like an economy or a market, I think it is difficult to believe that there is full strategic interaction going on. It is just asking too much of people.

    Kirman admits that game theory may be useful in analyzing relations of strong interactions. But he is thinking that game theory is not an appropriate tool of analysis for large systems such as an economy or a market. Consequently, he thinks that game theory may be useful for specific situations that are ordinarily attacked by microeconomics and it gives us an important insight that are not obtained form equilibrium analyses, but he excludes the possibility that it can be used for macroeconomics.

    Financial market case is delicate. He admits that financial market theory must take into consideration interactions between people in which they “start to worry about the fact that what they do has an impact on what other people do” and that must “makes the life very different”. However, it is also important that he is not claiming that financial market can be analysed by game theory. He only said that “really important insight” comes out of game theory”.

    In Chapter 4 Financial Matkets: Bubbles, Herds and Crashes of his book Complex economics, he refers to game theory only once when he refers to “quantal response rule“ (pp.14-150). Actual analysis in this chapter is very different from game theoretic analyses.

    You are interpreting Kirman’s thought for the convenience of your stance.

    • October 7, 2020 at 9:00 pm

      Yoshinori, you are defending the indefensible. Kirman wrote: “For certain specific, local problems, game theory is a very nice way of thinking about how people might try to solve them, but as soon as you are dealing with a general problem like an economy or a market, I think it is difficult to believe that there is full strategic interaction going on”. Is not Kirman distinguishing between the specific and the general? Pot calling kettle black!

      What you yourself are missing is the general form of interaction that is NON-interaction: commitment to a position, forebearance, forgiveness; giving way at roundabouts to quote my earlier example. That seems in reality to be only way to deal with uncertainty: due in reality to interaction of conflicting aims and in modelling the aggregation of incommensurables.

      • Yoshinori Shiozawa
        October 8, 2020 at 2:20 am

        I do not dispute this question anymore with you. It needs a third party to judge who is reading more correctly what Kirman wrote. I have different points to argue with Lars Syll if he is arguing game theory (its significance with regards to economics) in a right way.

        If you think that game theory is useful for macroeconomic study, I have no problem with it. I know no such examples. I do not believe there is such a possibility. But, If you want to believe the possibility of applying game theory to your macroeconomics, please do it. it is your freedom. Please remind that you are explicitly opposing Lars Syll who is denying any such possibility, be it micro or macro. He declares that “game theory never will be anything but a footnote in the history of social science.” This means that, according to Syll, game theory can never be any crucial tool of analysis for what you call “macroeconomics” you are trying to challenge.

      • October 8, 2020 at 9:01 am

        To say that game theory is a macro-economic perspective does not mean that it is a correct or fruitful one. The whole point of my argument was that it more or less correctly characterises a parasitic FIRE economy, not real economics. If you, Yoshinori, don’t want to deal with the problems of real economics, that is your prerogative, but it leaves you part of the problem.

      • October 8, 2020 at 9:12 am

        More haste, less speed! Re Lars saying game theory has little substantive content, I agree. It is about a non-economic way of thinking – logic applied to false premises – illustrated with perhaps fictitious examples of what is being thought about.

      • October 8, 2020 at 9:31 am

        As to what the teaching of economics ought to be about, David Bower has just resurrected a splendid 2017 discussion on “Economics is a waste of time”.


      • Yoshinori Shiozawa
        October 8, 2020 at 7:24 pm

        Thank you, Dave, for reminding me Peter Radford’s paper on February 15, 2017. I also found that I have posted many comments more than three years ago. I have re-read all comments. It was quite interesting to read various comments after more than three years. I re-confirmed that I was rather the unique person who explicitly opposed Radford’s position.

        My comment posted more recently on August 23, 2020 at 7:39 am with the title Again on Peter Radford’s article “Economics is a waste of time” poses a question over wide spread belief that we can consider better with tabula rasa. I must thank Dave Taylor for giving me the chance to
        re-emphasize the irrelevance of tabula rasa thinking. The trouble with this thinking is that people who adhere to this idea do not know or acknowledge that they draw on this spontaneous simplicist philosophy.

  4. Yoshinori Shiozawa
    October 8, 2020 at 12:21 pm

    I agree with Lars Syll’s conclusion in his article “Game theory — theory with little substantive content” on October 5, 2020, i.e.

    If we want to construct a theory that can provide us with explanations of individual cognition, decisions, and social interaction, we have to look for something else.

    We have to look for something else than game theory. I have no objection on this part. As I have argued in my post on Lars Syll’s article on October 2, 2020, I am carrying out it for my work. I also agree with Lars Syll’s conclusion in the above article:

    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.

    This is also what I am trying to do. It is remarkable that Lars Syll begins to talk about alternatives, even in a very brief way, instead of categorically accusing this and that method employed by mainstream economics. I find some progress in his way of arguments.

    What I want Lars Syll to change further is his categorical denials of various tools of analyses. Game theory is one of them and he picks up it repeatedly. Other favorite topics are mathematics and model building. We may add in this list agent-based simulation. On this question, I have the same feeling as Alan Kirman. In response to interviewer’s question, he answered in this way:

    I find it strange that we should worry about a tool, that this tool should somehow be a criterion for judging work or be the subject of criticism. Mathematics is just a way of simplifying a problem, perhaps wrongly at times. John Chipman did a survey of international trade theory at one point, which was published in Econometrica (Chipman 1965), and there he says that sometimes mathematics turns out to be useful because it enables you to frame things in a clearer way. For him, solving certain problems in economics without mathematics is a bit like crossing the Channel by swimming. It is an admirable feat and everybody applauds it, but it is probably not the easiest way to cross the Channel. So, in a sense, avoiding mathematics in principle does not seem to me to make any sense. But becoming obsessed with mathematics does not seem to make any sense either.

    Alan Kirman 2011 Erasmus Journal for Philosophy and Economicse 4(2), p.60. See the link given in Lars Syll’s article above.

    It is not good to condemn a tool of analysis that it is categorically good or wrong. The first thing we should make is whether the method was applied correctly and effectively. If an application is made in a bad way or on a wrong question, we should condemn the way it was applied. Evidently, it is the mistake of the researcher who has chosen the method to analyze the phenomenon. The second question we should ask is when we can apply a method rightly and effectively. To answer this question requires wide experiences of using the method and a deep insight on the possibilities and the limits of the method.

    This second question is extremely important for young researchers and students. If they apply wrong method in analyzing a problem they want to clarify, the result will be disastrous. Lars Syll often argues that game theory will be nothing but a footnote in the history of social science. See his 2018 paper “Why game theory never will be anything but a footnote in the history of social science”, Real-World Economics Review, 83. (The link is also given in Lars Syll’s article above.) It may be a method to tell young researchers that game theory has no tremendous possibility as they believe it has. There may be some people who will be persuaded by this kind of revelation. If they will search other method of analysis to use in attacking their problems, it will be a good effect of Lars Syll’s argument. But, I wonder if this kind of revelation is really effective in bringing those researchers to seek other methods than game theory. If they have an experience to have found even a small discovery on how people behave in their game theoretic situation, it is also certain they deem Lars Syll’s opinion as unreasonable and even blasphemous.

    In my opinion, the better way is to point the possibilities and limits of game theory. Any tools of analysis have their proper range for being effectively applied, be it narrow or wide, important or insignificant. Let me cite my own Reply posted as a comment to Lars Syll’s article in this blog on January 12, 2018. I have descrived the rough range of useful applicability of game theory:

    January 13, 2018 at 1:24 am Reply

    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.

  5. Yoshinori Shiozawa
    October 8, 2020 at 12:27 pm

    I have missed to put closing tag after “Lars Syll’s article”. That is why all the text after is expressed as part of a link, I do not post the corrected version, because I think the text is sufficiently readable despite of my error.

  6. October 8, 2020 at 3:45 pm

    So Peter Radford advised young students to “stay away from economics”, and Yoshinori [by now predictably] replies [4 My 2017 at 2.01 pm] “I cannot agree with Peter Radford.”

    This after Peter advocated studying the economy and other ways of thinking rather than the present mendacious theory of economics: “So: my advice is to study the economy by taking classes in politics, sociology, philosophy, business or organizational theory. Get steeped in information theory. Build those agent based models. Go and talk to workers, shopkeepers, and all the other people in the real world.”

    Yoshinori then said: “I agree with Larry Motuz. He put it: “Don’t just talk about changing theory. Change it.” … Students should know the possibility of the alternative economics. Even if they are still in a formative state, students should learn them eagerly”.

    Okay. So I’ve shown him the possibility of an alternative economics and (far from wanting to study it eagerly) he doesn’t want to know. He’s learned his economics from economists, not from those who live in the economy and can see it, “warts and all”.

  7. Craig
    October 8, 2020 at 5:00 pm

    Game theory is on the abstract opposite side of the economic modeling spectrum from Wisdomics-Gracenomics which is direct, hands on, innovative to the point of paradigm changing and insightful regarding the ACTUAL economic process itself.

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