Game Theory and Public Policy, SECOND EDITION
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Game Theory and Public Policy, SECOND EDITION

Roger A. McCain

This book provides a critical, selective review of concepts from game theory and their applications in public policy, and further suggests some modifications for some of the models (chiefly in cooperative game theory) to improve their applicability to economics and public policy.
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Chapter 10: Biform games and considerable solutions

Roger A. McCain

Extract

The previous chapter has argued that cooperative and noncooperative game theory reflect different conceptions of rationality – ideal and perfect, that is, cooperative and noncooperative rationality respectively. Neoclassical economics and game theory within the scope of the “Nash Program” (Chapter 3, section 3.2 above) assume that human rationality is fundamentally perfect, and deviations from that (including what might appear to be ideal rationality) are to be explained by the particular circumstances, such as enforceable contracts with given penalties for violation. We might explore the opposite hypothesis: that human rationality is fundamentally ideal, and deviations from ideal rationality are to be explained by the particular circumstances. As Nobel Laureate Eric Maskin has observed (2004) “We live our lives in coalitions.” Among these “coalitions” are business firms, political organizations, churches, clubs, unions, and perhaps governments. In conventional economics and noncooperative game theory, these economic and other organizations are analyzed in terms of noncooperative decisions, contracts and organizational rules, a genre exemplified, for example, by the work of Jean Tirole, honored by the 2014 Nobel Prize and that of Oliver Williamson, honored by the 2009 Nobel (Royal Swedish Academy of Sciences). Even if economic organizations are fundamentally cooperative, this work has much to teach us about the ways human beings whose rationality is neither ideal nor perfect may attempt to approximate a cooperative arrangement.

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