Is Game Theory Fundamentally Reductive?

November 18, 2022

Human head of puzzle

Is game theory fundamentally reductive?

Introduction

Game theory is a theoretical framework for understanding human behavior. It’s based on the idea that people are rational economic actors who will always act in their own self interest. The problem with this assumption is that it doesn’t take into account all the other aspects of human behavior–including emotions, beliefs and spirituality–that are not about maximizing utility but rather about finding meaning or beauty in life. This is why game theory is so controversial!

Game theory assumes the best strategy is to know your odds and play the percentages.

Game theory is the mathematical study of decision-making and zero-sum games. The assumption that people will act in their own self interest can be said to be a fundamental axiom of game theory, as it allows for a clear analysis of how people will play games with one another. Game theory assumes that you have perfect knowledge about your situation so you know what the best strategy is in any given situation.

The first step toward understanding game theory is understanding two terms: Nash Equilibrium and Pareto Improvement (also known as Pareto Optimality). A Nash equilibrium occurs when neither player has any incentive to change their strategy once they realize what everyone else’s strategy is going to be (a “best response”). In other words, if everyone else plays this way then I should too because it would put me at an advantage if I played differently than everyone else.

A Pareto improvement happens when there are no possible changes that make at least one person better off without making anyone worse off–this means there’s no way for someone not involved directly but affected by these changes (those who aren’t playing) could benefit from them happening

The zero-sum game

The best way to get what you want is to take what another person wants, and this is a zero sum game.

The goal of game theory is to understand the strategies of competing parties. This is achieved by developing models with a limited set of assumptions, which can then be used to predict how these parties will interact. Game theory assumes that people are rational and their goal is to maximize their utility (what they want).

The most common example: in a zero sum game, if one party wins $10, then the other party loses $10 (there are no such things as win-win situations).

This cannot be stated enough: in game theory, you do not care what another player is thinking or feeling, only how they will react to your strategy.

In game theory, you do not care what another player is thinking or feeling. You only care about how they will react to your strategy. This can be stated as a general rule: in game theory, you do not care what another person is thinking or feeling, only how they will react to your strategy. Game theory assumes that people are rational and self-interested; it assumes that each individual acts on the basis of their knowledge of the situation; and finally, it assumes that individuals act according to consistent principles (such as trying to maximize their utility).

The game theory presumes that people are entirely self-interested and fully aware of the situation they are in. They then act on that knowledge with perfect rationality in order to maximize their utility.

But this is not always true, as we can see in many cases where game theory fails us. For example:

People’s rationality may be compromised by various mental illnesses (e.g., depression).
Self-interest may depend on a person’s social role (e.g., an employee trying to please his boss).
Perfect information of the relevant variables might not exist or be known by all parties involved (e.g., during a negotiation).

The unknowable aspects of life and the human mind–things like intuition, spirituality, and emotions–are not considered by game theory; they are dismissed as irrational.

Game theory is based on the idea that people are rational actors, and it assumes that a person’s choice to do something can be predicted based on their rational self-interest. For example, if you are playing a game of Monopoly with your friends, and your friend asks you to take one of their properties out of the game so they have more chance at winning (because they have already landed on it), then game theory would predict that you would probably agree because giving them property will help your own chances at winning.

But what about intuition? What about spirituality? What about emotions? Game theory cannot account for these factors; in fact, most game theorists will tell you that these aspects of human behavior are irrational! So while game theory can still be used as an analytical tool to explain certain aspects of human behavior (like why someone might choose A instead of B), it cannot provide an explanation for all behaviors or situations involving humans.

Game theory approaches problems as either win-win or lose-lose–no wonder it is so controversial!

Game theory is a mathematical approach to studying conflict and cooperation. It assumes that people are rational actors who make decisions based on self-interest, and do so with perfect rationality. Game theorists have developed models for various forms of interaction, including games like chess or poker, but also for more complex social interactions such as bargaining or coalition formation.

As an example, consider this game theoretic model from John Nash:

A is given $5 and told he can give up all or some of it to B, who will then decide whether he wants to keep everything (if A gives him everything) or nothing (if A gives him nothing). Then A decides whether he wants to give up all or some of his money again in a similar scenario in which C has the same options of taking everything (if A gives him everything) or nothing (if A gives him nothing). Once C’s choice is made public, then B decides what course of action will be best for him/her given these outcomes.*

Conclusion

The reality is that human beings are complicated, and there is more to life than winning or losing. Game theory has been criticized by many people for its simplistic assumptions about how people behave and what they want. It ignores the fact that most decisions are made not on the basis of maximizing utility but rather out of emotion or sympathy; it cannot explain why people would ever choose to act against their own self interest; and it fails to acknowledge the importance of emotions like love or empathy because they do not fit into its rigid framework.