I wrote: >>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.<<
Gil:>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.< do you have any examples? ... >>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.< For those who don't know, Nash equilibrium in GT is the equivalent of "rational expectations" in macroeconomics, i.e., totally unrealistic.[*] It assumes that people know much more about the game's rules (and the other participants) than is possible to know. It only makes meaningful predictions if the game description allows the existence of a unique equilibrium. If Nash equilibrium is in "the core of game *theory*" then GT is rotten to the core. On the other hand, if Nash equilibrium is seen as merely an ideal and unlikely situation against which the messiness of reality is compared, then maybe there's hope for GT. ... >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. ...< So we should gather a bunch of left-minded microeconomists to develop an alternative to GT. One thing that would help is to bring in the macrofoundations of microeconomics rather than flirting with discredited methodological individualism. The rules of a "game" are more than mere microfoundations (since they structure micro interactions rather than being a result of them). So some sort of theory of how these rules are created in a historical process seems needed. Of course, we'd also need a theory of how individual motivations are determined. ... Jim Devine [*] In the rational expectations theory of Muth, participants in a market know the workings of a supply and demand model well enough to expect that the market price will be the model's equilibrium price plus/minus a (nicely behaved) random error. (They don't get their expectations from experience with history as in the adaptive expectations model.) Later theory applied this to the economy as a whole or (in the "efficient markets hypothesis") to financial markets. The theory has generally flunked the empirical test.
