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Posted by: Michael Mandel on October 13
Well, it looks like game theory is a great uniter, with economists on both the right and the left leaping in to defend it from my questions, The first shot came from Tyler Cowen, a libertarian. Now, Mark Kleiman, who identifies himself as a “reality-based” type (think Brad DeLong) writes that
Michael Mandel admires Schelling but seems dismayed that game theory isn’t a perfectly predictive Theory of Everything. (Tyler Cowen tries to straighten him out, unfortunately unsuccessfully. If you doubt the utility of game theory, just ask an evolutionary biologist.)
Just ask an evolutionary biologist? Oh. I was commenting on the inability of game theory to make testable economic predictions, and I’m being pointed to the theory of evolution. Hmm…
I’ve looked through most of the responses to my posts, and I’m not sure I’ve seen anyone cite a falsifiable prediction of game theory.
This is incredibly important. Game theory is the part of economics which is supposed to take care of things like institutions, bargaining, power, coercion, exploitation, etc. Little things like that.
Summarizing: To the degree that economics has political content, it’s dealt with by game theory.
I’d argue that both libertarians and “reality-based” economists like Kleiman (who has a PhD in public policy, so I’ll make him an honorary economist) are making a mistake by defending game theory, which is anything but reality-based. Robert Waldmann notes
I’d say my objection to game theory is not that it isn’t “a perfectly predictive Theory of Everything” but rather that predictions based on game theory about behavior in the simplest settings for which game theory was developed are consistently refuted by experimental evidence.
Waldmann also points out that “Richard Lewontin..attempted to apply game theory to population biology and found it useless (at the time he was one of the worlds two leading population biologists).”
Brad Plumer examines U.S. strategy in Iraq, and observes that
Mandel’s seems right when he says that “real-world decision-makers frequently appear not to evaluate uncertain events according to the laws of probability.”
Some economists on the right, like Russell Roberts of Cafe Hayek, also seem to be agreeing that game theory is not all that it’s cracked up to be. He argues that
the kind of phenomena that game theory helps with are more limited than most of the profession seems to think. Competition reduces the role and importance of strategic behavior and makes game theory less useful.
…game theory can organize your thinking the wrong way because it tends to cause its users to underestimate the power of competition….
Like I said before, I think both Schelling and Aumann are good choices for the Nobel Prize. I am, however, amused by the profession’s reflexive defense of game theory.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.