Siegfried, Tom. "3 Nash’s Equilibrium--Game theory’s foundation." A Beautiful Math: John Nash, Game Theory, and the Modern Quest for a Code of Nature. Washington, DC: The National Academies Press, 2006.
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A Beautiful Math: John Nash, Game Theory, and the Modern Quest for a Code of Nature
every pothole—if it showed all that, it wouldn’t be a map of Los Angeles, it would be Los Angeles. Nevertheless, a map that leaves out all those things can still help you get where you want to go (although in L.A. you might get there slowly).
Naturally, game theory introduces simplifications—it is, after all, a model of real-life situations, not real life itself. In that respect it is just like all other science, providing simplified models of reality that are accurate enough to draw useful conclusions about that reality. You don’t have to worry about the chemical composition of the moon and sun when predicting eclipses, only their masses and motions. It’s like predicting the weather. The atmosphere is a physical system, but Isaac Newton was no meteorologist. Eighteenth-century scholars did not throw away Newton’s Principia because it couldn’t predict thunderstorms. But after a few centuries, physics did get to the point where it could offer reasonably decent weather forecasts. Just because game theory cannot predict human behavior infallibly today doesn’t mean that its insights are worthless.
In his book Behavioral Game Theory, Colin Camerer addresses these issues with exceptional insight and eloquence. It is true, he notes, that many experiments produce results that seem—at first— to disconfirm game theory’s predictions. But it’s clearly a mistake to think that therefore there is something wrong with game theory’s math. “If people don’t play the way theory says, their behavior does not prove the mathematics wrong, any more than finding that cashiers sometimes give the wrong change disproves arithmetic,” Camerer points out.27 Besides, game theory (in its original form) is based on players’ behaving rationally and selfishly. If actual real-life behavior departs from game theory’s forecast, perhaps there’s just something wrong with the concepts of rationality and selfishness. In that case, incorporating better knowledge of human psychology (especially in social situations) into game theory’s equations can dramatically improve predictions of human behavior and help explain why that behavior is sometimes surprising. That is exactly the sort of thing that Camerer’s specialty, behavioral game theory, is intended to do. “The goal is not to ‘disprove’ game theory … but to improve it,” Camerer writes.28