Why study Game theory when it has limited practical applications in real life?

I was just amazed to read this interview of Ariel Rubinstein. Someone who is so famous for his game theory work actually feels it does not really have  much practical usage. He actually encourages people to write a book which shows limitations of game theory! He also talks about why so many Israelis take up game theory (because of Aumann effect) etc.

I was so surprised to read the interview that had to re-read it many times to be sure whether I have not read it wrong ..

He starts by saying much of game theory is based on the typical econ assumption of rationality. So you feel as if he will tell you the new ideas emerging etc in GT. However what you get instead is this:

What are the applications of game theory for real life?

That’s a central question: Is game theory useful in a concrete sense or not? Game theory is an area of economics that has enjoyed fantastic public relations. [John] Von Neumann [one of the founders of game theory] was not only a genius in mathematics, he was also a genius in public relations. The choice of the name “theory of games” was brilliant as a marketing device. The word “game” has friendly, enjoyable associations. It gives a good feeling to people. It reminds us of our childhood, of chess and checkers, of children’s games. The associations are very light, not heavy, even though you may be trying to deal with issues like nuclear deterrence. I think it’s a very tempting idea for people, that they can take something simple and apply it to situations that are very complicated, like the economic crisis or nuclear deterrence. But this is an illusion. Now my views, I have to say, are extreme compared to many of my colleagues. I believe that game theory is very interesting. I’ve spent a lot of my life thinking about it, but I don’t respect the claims that it has direct applications.

The analogy I sometimes give is from logic. Logic is a very interesting field in philosophy, or in mathematics. But I don’t think anybody has the illusion that logic helps people to be better performers in life. A good judge does not need to know logic. It may turn out to be useful – logic was useful in the development of the computer sciences, for example – but it’s not directly practical in the sense of helping you figure out how best to behave tomorrow, say in a debate with friends, or when analysing data that you get as a judge or a citizen or as a scientist.

He thinks much of the books which say GT is very useful are plain marketing gimmicks:

So the situation of the prisoner’s dilemma couldn’t arise in real life?

I didn’t say that. In game theory, what we’re doing is saying, “Let’s try to abstract our thinking about strategic situations.” Game theorists are very good at abstracting some very complicated situations and putting some elements of the situations into a formal model. In general, my view about formal models is that a model is a fable. Game theory is about a collection of fables. Are fables useful or not? In some sense, you can say that they are useful, because good fables can give you some new insight into the world and allow you to think about a situation differently. But fables are not useful in the sense of giving you advice about what to do tomorrow, or how to reach an agreement between the West and Iran. The same is true about game theory. A main difference between game theory and literature is that game theory is written in formal, mathematical language. That has advantages and disadvantages. The advantages are that the formal language allows us to be more precise, it allows us to get rid of associations that are not relevant and it allows us to better examine some arguments. The disadvantage of formal language is the level of abstraction, which has two main downsides. First of all, it makes the theory very far away from one minus epsilon of the population. Even among the academic community, most people who claim to use game theory hardly understand it. Secondly, abstraction has the negative side that once you abstract things, you miss a lot of the information and most of the details, which in real life are very relevant.

In general, I would say there were too many claims made by game theoreticians about its relevance. Every book of game theory starts with “Game theory is very relevant to everything that you can imagine, and probably many things that you can’t imagine.” In my opinion that’s just a marketing device.

Phew…

Why study it then?

Why do it then?

First, because it is interesting. And I’m not saying it isn’t useful in indirect ways. I believe that intellectual thinking – philosophy or logic or game theory – is very useful in the cultural sense. It’s part of the culture, it’s a part of our perpetual attempt to understand ourselves better and understand the way that we think. What I’m opposing is the approach that says, in a practical situation, “OK, there are some very clever game theoreticians in the world, let’s ask them what to do.” I have not seen, in all my life, a single example where a game theorist could give advice, based on the theory, which was more useful than that of the layman.

There is probably a confusion in the public between the personal abilities of game theorists and the power of the theory itself. The community of game theoreticians contains some brilliant people who have also “two legs on ground”. This rare combination is very useful. People like that can come up with interesting and original ideas. Not everyone – there are brilliant game theoreticians who I would not ask for any practical advice. But the advice of the other, even if it is good, should not lean on an authority.

Looking at the flipside, was there ever a situation in which you were pleasantly surprised at what game theory was able to deliver?

None. Not only none, but my point would be that categorically game theory cannot do it. Maybe somewhere in a Sherlock Holmes or Agatha Christie story there was a situation where the detective was very clever and he applied some logical trick that somehow caught the criminal, something like that. You know in America there was a programme on CBS, called Numbers, written Numb3rs, with the ‘e’ reversed. Numb3rs wanted to make people curious about mathematics through detective stories. I happened to hear about it because I had done some experimental work with Amos Tversky and Dana Heller, about the game of hide and seek. In one of the episodes they refer to the paper. Of course it was a joke, but the fact that my name was mentioned in such a programme made me very happy. But outside such programmes, I categorically cannot see any case where game theory could be helpful.

He says people simply study it as they love it.

He then picks his books. The one on Nash and his views on Nash are interesting:

Time to talk about your next book, A Beautiful Mind.

This book is completely different. I picked it because when you think about the field you think also about the people who were involved. Of course the story of Aumann, the story of many other people, is interesting, but Nash’s story also has a message. The message is completely separate from game theory, but nevertheless, it happened around the development of game theory. Sylvia Nasar’s book is a brilliant book because she made a deliberate decision not to explain game theory. What she describes is a human drama.

Sylvia Nasar was a reporter for the New York Times when she covered the success of the [telecommunications] spectrum auctions in 1994. The auction was described – in my opinion wrongly – by the popular press and by some game theoreticians as the glorious success of the field of game theory, in terms of making it applicable. But in any case, the success was in contrast to the misery of one of its important contributors, John Nash.

Hmm…So was much of what Nobel Prize Committee and so many others have been saying wrong things?

Finally on his fifth book. There is no pick. He is waiting for the right one:

So, your last book. You told me it was going to be a surprise.

Yes, I promised you a surprise as the fifth book. The fifth book is a book that has not been written yet. That’s the point. The fifth book is a lacuna, it’s a space that has to be filled. The book which, in my opinion, is so much waiting to be written is a book that will criticise game theory. Not from a sociological point of view, not a personality analysis of people like Aumann or Shapley or Schelling or whoever, but a purely intellectual analysis. There is a need for a book that counters the natural tendency of people to find in game theory solutions to problems that in my opinion game theory doesn’t say anything about. I’ve tried to do something small in this direction, in a book – EconomicFables – that has been published in Hebrew. It’s going to be on the web in English very soon, for reading in Google Books. But my book is not more than a call for such a book.

Why do so many Israelis take up GT then? It is Aumann effect:

People ask, “Why is game theory so popular in Israel?” One explanation is Aumann’s charming personality. His role in Israeli game theory reminds me of that of a rabbi in Jewish orthodox communities. Another explanation is the traditions among religious Jews – which have also had an effect on non-religious Jews – of the study of the Talmud. The study of the Talmud is not practical. For example, scholars of the Talmud were studying the question of what to do in the temple place during the entire 2,000 years we were disconnected from Jerusalem. One of the things that is beautiful about the Talmudic thinking is that it’s based on study of examples. The examples are very simple scenarios which demonstrate something deep. I believe that Aumann is influenced by this Talmudic way of thinking.

Hmmm..

Stirring stuff from Prof. Ariel. Here is a counterpost on why GT is useful..

Rubinstein himself wanted to be a lawyer actually. Why he got into eco and GT? This explains:

Like everything else in Ariel Rubinstein’s life, the origins of his involvement with economic theory should be sought in his childhood in pre-1967 Jerusalem. One day in the mid 60’s, Ariel went to a newspaper booth in Tel-Arza neighborhood and asked the vendor for a dirty magazine. As it turns out, the vendor was a communist, and so he gave Ariel a pack of old Econometrica issues from the early 1950s. He pointed out a particularly filthy paper by Arrow and Debreu in the 1954 volume. As young Ariel leafed through the yellow pages, he instantly fell in love. This was the birth of a stupendous career.

This is really funny..

Addendum:

On similar lines Abhijit Banerjee tried to answer the question on why so many Bengalis opt for economics in India? The answer was similar to Ariel’s. It is not in the genes of Bengalis but great economics teachers in Bengal:

On a recent trip somewhere, a Uruguayan economist I just met asked me if I was a Bengali: “Aren’t all Indian economists Bengali and all Indian mathematicians south Indian?” I demurred, pointing to that great triad of non-Bengali economists, Bhagwati, Dixit and Srinivasan, but like many stereotypes there is a kernel of truth in it; it’s still not possible to open an issue of certain journals without noticing a Bengali name or two.

 How did this come about? Amartya Sen notwithstanding, it is not because of something in the Bengali genes. If I had to guess it has much more to do with a couple of generations of outstanding teacher-scholars in Kolkata who, implausibly (remember the old joke: “an accountant is an economist with charisma”) managed to turn economics into the sexiest thing that you could study. Those wonderful teachers are now, alas, mostly all gone. We lost one of last remaining of them, Tapas Majumdar, in the middle of October.

Hmm..


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