I'm not sure I agree with Jim's characterizations of game theory below, but maybe the differences are just terminological, since we agree on several uses of game theory.
So far, Game Theory is more of a way of asking questions than it is a theory (like that of supply and demand) that sometimes gives clear answers that have empirical referents.
Game theory certainly develops a framework for thinking about certain types of questions, but as the name advertises, it's also a theory that yields explanations and predictions about social outcomes in strategic settings. And it "sometimes gives clear answers that have empirical referents", as in the application of game theory to bargaining situations.
A colleague argues that the main contribution of GT is that it facilitates the design of behavioral economics experiments.
It certainly does that as well. Which is good, because I think game theory has a lot to gain from the behavioral insights yielded by economic experiments.
For example, if you look at a simple "Prisoners' Dilemma" game, game theory makes no predictions unless a very clear equilibrium concept (such as Nash equilibrium) is assumed, going beyond GT _per se_.
I'd say to the contrary that Nash equilibrium is a core part of game *theory*--specifically, noncooperative game theory--as opposed to game "descriptions". It's the starting point for making predictions in noncooperative strategic settings.
But even then, the predictions don't work very well in practice. But one can use the idea of a PD to design an experiment to test whether people are individualistic and fink on their fellow participant (as economists typically assume) or have some sense of solidarity and don't (which goes against economists' grain).
Well, against *some* economists' grain, perhaps. I don't see anything necessarily anti-game theoretic, or anti-economic, about allowing for the possibility of solidarity norms. As for the point that game theoretic predictions are not always borne out, that's true, but in the absence of a superior alternative, this doesn't necessarily count as an indictment, just an observation that social inquiry is not an easy thing to do. I agree with Jim's point here that even empirically problematic game theoretic models can provide useful starting points for further analysis.
Keep in mind here that "game theory" no longer describes anything monolithic--besides the traditional dichotomy of noncooperative and cooperative game theory, there's now evolutionary game theory and behavioral (including norms-based) game theory. In other words, people recognize and are responding to existing limitations in the theory. It's an ongoing project.
I don't know the literature on PD tests, but I would guess that results depend on where and when the experiments are done. One famous result is that people take economics courses become more likely to fink afterwards. There is some evidence against this result, but I'm not up to date on it.
Depends on the economics course. I'll bet students taking Jim's economics courses would not display this tendency.
I recommend Hargreaves Heap and Varoufakis' book GAME THEORY: A CRITICAL TEXT (Routledge, 2004).
That's an excellent book. I'd add recommendations for Colin Camerer's remarkable new (as of last year) book in behavioral game theory, Herb Gintis's book on game theory, and Ken Binmore, Game Theory and the Social Contract: Playing Fair. And although not specifically about game theory, Sam Bowles's new book Microeconomics incorporates game-theoretic analyses of economic institutions and their evolution.
Gil
Jim Devine, e-mail: [EMAIL PROTECTED] web: http://myweb.lmu.edu/jdevine/
> -----Original Message----- > From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Gil > Skillman > Sent: Wednesday, February 02, 2005 7:38 AM > To: [email protected] > Subject: Re: [PEN-L] You Got Game Theory! > > At 06:35 AM 2/2/2005, you wrote: > >bit of a cheap shot (maybe) but kinda funny... mh > > Funny, and striking, but it also strikes me that the article misses > a key > point about the difference between *participating* in complex > interactions > and *theorizing* about said interactions. To capture exactly what's > going > on when people make difficult plays in dynamic team sports (think of > passes > in football, basketball, or soccer, e.g.) would involve complex > systems of > differential equations, perhaps, but that doesn't mean that sports > teams > would want to hire mathematicians specializing in differential > equations to > set up plays for them. Nonetheless, someone analyzing how the sport > is > played might still gain some insight from doing the relevant > mathematical > analysis. > > Same thing with businesses and game theory. Business managers > certainly > recognize that they're in strategic settings, and the businesses > that > thrive in such settings are those that learn, by whatever means, how > to > "play the game." But their concerns are different from those of an > economic game theorist trying to understand how the industry *taken > as a > whole* operates and responds to changes in the economic environment. > > And while there is certainly a "common sense" aspect to game theory, > not > all of its predictions are readily arrived at through an application > of > common sense--or maybe it's more apt to say that the "common sense" > solution to a knotty economic problem only emerges after careful > scrutiny > of how the pieces of the problem fit together. > > Gil > > > >FAST COMPANY Issue 91 February 2005 Page 32 > >You Got Game Theory! > > > >It was all such fun until we realized that no business really uses > game > >theory. > > > >By Martin Kihn > > > >Game theory is the fun-sounding branch of economics introduced in > the > >1940s by Hungarian genius John von Neumann and developed in the > 1950s by > >Princeton's John Nash, subject of the 2001 Oscar-winning film A > >Beautiful Mind . > > > >Over the years, the status of game theory -- which describes the > >interactions of self-interested parties such as poker players and > deal > >makers -- soared, and its insights were applied to fields as > >far-reaching as evolution, auctions, even counterterrorism. Playing > >along, we here at the CDU decided to find out just how much court > time > >game theory gets in the big game of business. After all, it has > been > >taught to almost every one of the some 2.5 million MBAs and > economists > >in the United States alone. Surely, we thought, it would be a slam > dunk > >to turn up dozens of examples of game theory applied in the real > world. > > > >Adopting our usual rigorous methodology, we set the following > >parameters. To count, an example must: > > > >1. be an actual business situation where somebody used the > insights > >of game theory; > >2. have occurred within the past five years; and > >3. involve real, live, actual companies -- not governments, > >nonprofit organizations, or Russell Crowe. > > > >First, we scoured the literature. We selected a relevant portfolio > of 40 > >publications and submitted our queries. We tried again. And again. > And > >we found . . . nothing . There were plenty of mentions of > government > >spectrum auctions, and A Beautiful Mind came up hundreds of times. > Not > >quite what we had in mind. > > > >Perhaps, we thought, the media just doesn't get it. Undaunted, we > >assembled a panel of 30 respected game theorists around the world, > and > >we sent them a survey asking, "Can you think of any examples of > real, > >live companies that have consciously applied game-theoretical > concepts > >to a real business problem?" > > > >The response was . . . a deafening chorus of head scratching. > > > >"The short answer is, I don't know," said David Levine of UCLA. > "Let me > >think about this," replied MIT's Muhamet Yildiz. > > > >Others on our expert panel, while not offering up any actual, you > know, > >examples , were willing to speculate on why they couldn't. > Traditional > >game theory "prescribes a lot of advice that does not actually seem > to > >work," admitted Paul Bartha of the University of British Columbia. > Why > >not? Maybe because "the sorts of situations that would allow the > >application of formal methods are so simple that people can > understand > >them without much help," suggested the University of Minnesota's > Andy > >McLennan. > > > >Does that mean game theory is just, um, common sense? "Game theory > gives > >you a nice systematic way to think about strategy, but it's not > magic," > >agreed Hal Varian, an economist at the University of California at > >Berkeley and coauthor of the bestselling Information Rules (Harvard > >Business School Press, 1999). Or, as MIT's David McAdams put it, > "Game > >theory is really a frame of mind and, once you have it, you see it > >everywhere." > > > >Everywhere, perhaps, and nowhere. > > > >In the end, none of our experts had a concrete example. But many > offered > >the same advice: "Ask Preston McAfee" -- an economist at the > California > >Institute of Technology and perhaps the country's foremost working > game > >theorist (he designed that government spectrum auction). He was > more > >encouraging: "There are lots of examples," he emailed, agreeing to > an > >interview. > > > >We reached the professor in his office at Caltech. "So," we asked, > "what > >are all these examples of game theory applied to real life?" There > was a > >silence on the line. "Well," he said, "a lot of companies hired > game > >theorists to prepare for those spectrum auctions." Okay -- but what > >about nongovernment auction situations? "I don't know of any > companies > >that employ pure game theorists -- but maybe they're keeping it > quiet." > > > >Very, very quiet. > > > >-------------------------------------------------------------- > >Please Note: > >Due to Florida's very broad public records law, most written > >communications to or from College employees regarding College > business are > >public records, available to the public and media upon request. > Therefore, > >this e-mail communication may be subject to public disclosure.
