I had been aware that some economists use game theory in considering how people behave, and they use those ideas in their models of economies. As I have previously noted, all the examples I have seen rest on notions of behaviour so far out of common experience as to be absurd on their face. For example the notion that price determines purchasing decisions, without any reference to questions of taste or value. As outlined in a previous thread they have recently discovered that is not true, though the rest of us knew that forever.
Today I have been made aware of another of these daft ideas, and I think it is instructive to look at what the mainstream game theorists thought; together with an alternative view which is laid out in a paper which happens to have been written by Yanis Varoufakis, who is now the Greek minister of Finance. Bearing in mind that the approach to the Greek financial crisis can, in one sense, be described as a fight between alternative analyses of the nature of the problem, then you have to ask yourself who is more likely to be right. It is not unreasonable to look at previous work in deciding how to answer that question. Insofar as the prescriptions of the Troika etc are based on the theories of mainstream economists, who will presumably include game theorists of this sort, we see a fight between those who have laid out the expected outcomes of this particular problem in one way; and their opponents, in this case Mr Varoufakis. It is coincidence that he is a player in both cases: but I know who I believe
His paper is here:
http://uadphil.econ.uoa.gr/UA/files/2013331662..pdfThe situation described is not the more familiar "prisoner's dilemma", though it has elements in common with that. In this example the problem is this.
Two (or more) players sit down at a table on which are a number of equal value coins. Each player may take either one or two coins, in turn. If the active player takes one coin the game continues. If the active player takes two coins the game ends. What will the first player do? According to mainstream economists the first player will take two coins. Apparently this is what they genuinely believe will happen. Have you ever heard anything less likely in your life???
Turns out that they have tried it: it is not what happens. Colour me astonished.
What is very striking about the paper is the sheer lengths Mr Varoufakis goes to to explain why the mainstream expectation is wrong. The paper is full of equations. There is no need at all for equations, because it is perfectly obvious how that happens: it is because we are not morons. But in the bizarre world economist inhabit ordinary language is no good at all: and ordinary thought is useless. So there must be equations or it does not count. Oh, the games people play (and I don't mean game theory)
Interestingly, even Mr Varoufakis does not consider a perfectly possible outcome at the end of the game, either. Yet I know from my own experience that the probability of the active player taking two coins when there are only 3 coins left is not 100%. I know this because many moons ago I played a game called "Risk" a couple of times. Admittedly there were not only two players, and that matters. What happened was this. Me and my friend, who had not played the game before, were invited to join in with a group of 4 who had played before. The rules were explained to us and we played two full games. We won both times. The reason we won was because we cooperated with each other throughout: and abandoned the game when only the two of us were left. After the second game we were told this was cheating, and they wouldn't play with us any more. Now I accept we did not have the same understanding of the point of the game that they had. But we did nothing outside the rules and it was a winning strategy. If they had been smarter they would then also have cooperated and 4 people would have won instead of two: but they didn't. Economists are like that!
Edited by FionaK - 4/10/2015, 13:13
