[lbo-talk] game theory takes a Nobel

andie nachgeborenen andie_nachgeborenen at yahoo.com
Mon Oct 10 08:57:48 PDT 2005


Not all of these results are totally obvious, although all of them haver been used intuitively by some decisionmakers.

Moreover some of the results of game theory -- in fact the fundamental results of game theory -- are counterintuitive. The prisoner's dilemma and its n-persopn variant, the public goods problem, are not intuitive to either ordinary peple or policymakers. I know this from years of teaching at least students in the old days. They found it very hard to wrap their heads around the idea that behavior that is rational for each, if engaged in bu all, can result in outcomes that worse overall for each as well as for all. Yet this is at the bottom of the basic Marxist argument that capitalism is an irrational system, and related arguments that scabbing and not joining a union are likely to (a) happen, and (b) hurt the workers individually and collectively. The PGP also helps explain why we need government at all.

Likewise the Nas equilibrium (the other fundamental result of game theory) is not obvious. As explained in the Wikipedia:

In game theory, the Nash equilibrium (named after John Nash who proposed it) is a kind of optimal collective strategy in a game involving two or more players, where no player has anything to gain by changing only their own strategy. If each player has chosen a strategy and no player can benefit by changing his strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium.

The point was that it wasn't obvious that there was any such thing, and this is somethging that lot of managers and politicians still don't get, that under certain certainstances changing your approach is not even to your own benefit. It might be argued that failure to grasp the underlying concepr of the nash Equilibrium was the Bush Administration's fundamental failure in getting us involved in Iraq.

So, not all social science or even economics is obvious.

--- Wojtek Sokolowski <sokol at jhu.edu> wrote:


> Doug cited:
> > Associated Press [via WSJ.com]
> >
> > He "showed that a party can strengthen its
> > position by overtly worsening its own options,
> > that the capability to retaliate can be more
> > useful than the ability to resist an attack, and
> > that uncertain retaliation is more credible and
> > more efficient than certain retaliation," the
> > academy said. "These insights have proven to be
> > of great relevance for conflict resolution and
> > efforts to avoid war."
>
> ----
> >
> > "In many real-world situations, cooperation may
> > be easier to sustain in a long-term relationship
> > than in a single encounter. Analyses of short-run
> > games are, thus, often too restrictive," the
> > academy said. "Robert Aumann was the first to
> > conduct a full-fledged formal analysis of
> > so-called infinitely repeated games. His research
> > identified exactly what outcomes can be upheld
> > over time in long-run relations."
>
> It never ceases to amaze me how common sense wisdom
> becomes a "cutting edge"
> discovery in economics. I bet that an average
> gangster - or a business man
> - knows these strategies by heart. Is it because of
> the "formal proof"
> (translation: saying the obvious in incomprehensible
> mumbo jumbo), or what?
> It certainly goes with my notion of economics as the
> modern equivalent of
> medieval theology - it is not science but a coherent
> system of beliefs that
> legitimizes the status quo.
>
> Wojtek
>
>
>
>
>
> ___________________________________
>
http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>

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