Re: [PEN-L] You Got Game Theory!

[Eugene Coyle]

Gil, I'm not talking about people building models for self edification.  I'm talking about real, live economists, at Berkeley and at the Kennedy School at Harvard, assuming competiton in electric generation to influence policy.  They are advising, for example, the governor of California to the effect that competition will work in electric generation.  The governor seems to be buying it but the legislature so far is skeptical.     Real economists do real damage.  And then you have charlatans like Vernon Smith, turning his Nobel into cash via destructive and stupid policy advice. Gene Coyle Gil Skillman wrote: At 12:28 PM 2/2/2005, you wrote: Micro economists using game theory ASSUME  competition and then use game theory to see how things work out -- which turns out to be competition. If by "competition" you mean "strategic interaction," then of course they do, since game theory is precisely a theory about outcomes of strategic settings.  If by "competition" you mean a certain *form* of competition, such as perfect competition, then of course they don't.  As a whole, Micro economists applying game theory to market settings consider the whole spectrum of competitive structures, from duopoly to (virtually) perfect competition and from bilateral monopoly to (virtual) bilateral competition. In my piece about why electric deregulation can't work I read a lot of (and quoted) Lester Telser.  He does NOT assume competition and discovers that collusion or cooperation is necessary for good outcomes for society.  Regulation of the collusion or cooperation is required for that good outcome. Yes, that would be an example where it would not be appropriate to assume perfect competition.    Game theory as used by economists is the same game as neo-classical micro, which a game of hide the ball. I don't see any coherent basis for this claim.  For example, where is the "hide the ball" aspect in evolutionary game theoretic models of institutional formation?  In the applications of strategic bargaining analysis to the prospects for and effects of collective bargaining?  In Matthew Rabin's analysis of fairness norms in strategic interactions?  (Etc.)  These are all instances of "game theory as used by economists." Gil Gil