Game… theory?

 Posted by on 23 October 2005 at 9:15 pm  Uncategorized
Oct 232005

This evening I purchased Ayn Rand Answers: The Best of Her Q&A. Highly Recommended. Surprisingly (at least to me), the most fascinating entry was regarding Rand’s distaste for chess.

I could never play chess. I resent it on principle. It involves too much wasted thinking. Chess is all “ifs,” and if there’s one thing I cannot do mentally, it’s handle anything more than two “ifs.” In chess, you must consider hundreds of possibilities, it’s all conditional, and I resent that. That is not the method of cognition; reality doesn’t demand that kind of thinking. In cognition, if you define the problem clearly, you really have only one alternative: “It is so” or “It is not so.” There is not a long line of “ifs” — and if your opponent does this, you will do that. I can’t function that way, for all the reasons that make me a good theoretical thinker: it’s a different epistemological base. [ARA 170]

What (pleasantly) surprised me was that Rand was stating the principle that explained my total disdain for game theory and much of modern economics (I’m speaking of the economics that tries to analyze all individual decisions in terms of cost/benefit analyses). Such theories do not refer to anything in reality.

Take the classical prisoner’s dilemma.

Two suspects A, B are arrested by the police. The police have insufficient evidence for a conviction, and having separated both prisoners, visit each of them and offer the same deal: if one testifies for the prosecution (turns King’s Evidence) against the other and the other remains silent, the silent accomplice receives the full 10-year sentence and the betrayer goes free. If both stay silent, the police can only give both prisoners 6 months for a minor charge. If both betray each other, they receive a 2-year sentence each.

In every analysis I’ve ever read, one question is never even considered let alone addressed: is the person in question guilty? Is this not an aspect relevant to man’s decision-making? And this goes to the root of the issue. A proper epistemology focuses on the “it is.” Is the prisoner guilty or innocent? The prinsoner’s dilemma ignores that question and views man’s epistemology as completely cut off from reality, concerned only with a churning of odds, incentives, desires, and tactics.

Just as symbolic logic represented the final step in philosophy’s attempt to divorce logic from reality, so game theory represents the attempt to dispense with reality as a factor in decision-making.

This is not to say that there aren’t legitimate uses for game theory or symbolic logic. But they are specialized fields of study, applicable in game like chess or poker. What’s disgraceful is the modern economists’ attempt to substitute game theory for cognition. As evidence, I offer you Steven Landsburg’s musings on the “economics of sex.” If that’s not rationalism run amok, I don’t know what is.

Modern economics has veered sharply from the task of identifying the nature of economic activity. It now operates on the premise that all human choices are economic choices: whether one is choosing between guns or butter, or between this potential lover and that one.

The question that interests me, and which I have not fully answered, is: where specifically has modern economics gone wrong? What is the proper starting point for economics… and its proper ending point? How do people actually make economic choices… and how do these choices differ from their non-economic ones?

Feel free to opine.

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