Monday, May 25, 2015

Gnash Equilibrium

Philip Mirowski, Machine Dreams
The mathematical price of demonstrating that every game had a fixed value was the unloading of all analytical ambiguity onto the very definition of the game. Far from being daunted at a game without determinate bounds, Nash was already quite prepared to relinquish any fetters upon the a priori specification of the structure of the game, given that the entire action was already confined within the consciousness of the isolated strategic thinker. The game becomes whatever you think it is. He dispensed with dummies, exiled the automata, and rendered the opponent superfluous. This was solipsism with a vengeance.
Yanis Varoufakis, "The Dance of the Meta-Axioms":
In game theory itself, questions were raised about the plausibility of presuming that rational agents must always select behaviour consistent with Nash’s (1951) equilibrium. In the context of static games it became apparent that disequilibrium behaviour could be fully rationalised and rendered consistent with infinite order common knowledge rationality. Similarly, it transpired that out-of-equilibrium behaviour could be just as rational in finite dynamic games as the equilibrium path proposed by Nash and his disciples.  As for indefinite horizon games, the devastating force of indeterminacy was felt in the form of the so-called Folk Theorem which shows that, in interactions that last for an unspecified period, anything goes. And yet, all applications of game theory, from theories of Central Bank behaviour to industrial organisation, labour economics and voting models, ignore these challenges, assuming that behaviour will remain on the equilibrium path.

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