Oversimplicity
Mark Rosenfelder questions some examples of Game Theory.
An economist sets up this game: He offers $10 to you and a stranger. The stranger is to propose a division of the money; you can either accept the division (in which case you each get the money according to the other guy's proposal) or reject it (in which case neither of you get anything).
If the stranger decides to divide it up nine to him, and one to you, what do you do? Think about it for a moment.
You told him to get stuffed? According to game theory you were wrong.
Game theorists say that you should accept any positive offer you receive, even one as low as a dollar, or you will end up with nothing. But most people reject offers of less than three dollars, and some turn down anything less than five dollars.
According to Mark Rosenfelder, you did the right thing.
Read the rest of the article to see why Game Theory, at least for this example, is completely useless as a model for economic interactions in the real world.
Posted by TimHall at September 16, 2006 04:31 PMThe problem with game theory applied to real-life problems is that it assumes all players are acting with complete rationality, devoid of emotions or any other motives beyond maximizing one's own gain.
In reality, people will frequently act "against their own interests" if they think they're being screwed.
Posted by: Amadan on September 16, 2006 08:33 PMI think you might have missed the point of Rosenfelder's post; he's saying that acting against your immediate short-term interests *shouldn't* be dismissed as irrational or emotional, because it's in your own (and everyone else's) longer-term interest not to encourage people to screw each other over.
Posted by: Tim Hall on September 16, 2006 10:05 PM