3 ms·

Game theory is a prescriptive theory, not a descriptive one. It's designed to find the decision that maximizes or optimizes the return, based on the availble in

by lmkg 17y ago

Game theory is a prescriptive theory, not a descriptive one. It's designed to find the decision that maximizes or optimizes the return, based on the availble information about the circumstances. In doing so, it sometimes arrives at counter-intuitive results. The fact that the results are counter-intuitive should immediately imply that it will not predict behavior. The fact that game theory is a poor predictor of behavior is an object of study for psychology, not for game theory[1]. So yes, game theory is useful for making decisions. It's just not useful as a predictor of human behavior. [1] Except insofar as if you want to apply it, you have to make different assumptions about the behavior of your opponents. But game theory is still perfectly amenable to adding those constraints.

_delirium 17y ago
There's some parts of economics that have used game theory as an analysis tool based on the set of assumptions: 1) humans, at least when they engage with markets, are rational actors; and therefore 2) markets will converge to the equilibria specified by game theory. Some of the empirical tests of game theory have had a not-so-hidden subtext of casting doubt on that kind of economics.
- thaumaturgy 17y ago
  It's funny, I was thinking about game theory applied to economics earlier, as a result of Dani's essay. So, anyway: I have a certain fondness for game theory as an overarching description of some aspects of economics. But it doesn't describe the whole picture. Game theory is great for example if you're trying to understand (or even predict) what'll happen when all parties involved are acting merely in the interests of their profits, and none of them are being especially innovative -- "cheating" in terms of game theory. What will industry Z do when faced with regulatory oversight? Let's ask game theory. At smaller and smaller scales, game theory breaks down due to the greater and greater influences of other aspects of psychology, sociology, and sciences. For example, a business may not act totally rationally in terms of its profits because one or more individuals is more concerned with the business's image.

by lmkg 17y ago

_delirium 17y ago

There's some parts of economics that have used game theory as an analysis tool based on the set of assumptions: 1) humans, at least when they engage with markets, are rational actors; and therefore 2) markets will converge to the equilibria specified by game theory. Some of the empirical tests of game theory have had a not-so-hidden subtext of casting doubt on that kind of economics.

thaumaturgy 17y ago
It's funny, I was thinking about game theory applied to economics earlier, as a result of Dani's essay. So, anyway: I have a certain fondness for game theory as an overarching description of some aspects of economics. But it doesn't describe the whole picture. Game theory is great for example if you're trying to understand (or even predict) what'll happen when all parties involved are acting merely in the interests of their profits, and none of them are being especially innovative -- "cheating" in terms of game theory. What will industry Z do when faced with regulatory oversight? Let's ask game theory. At smaller and smaller scales, game theory breaks down due to the greater and greater influences of other aspects of psychology, sociology, and sciences. For example, a business may not act totally rationally in terms of its profits because one or more individuals is more concerned with the business's image.