| | Fred,
I recognize and understand your sense of dismay. Sometimes it's like researchers are little children, creating little models that have little to do with the world as we know it. They create the models because they like the models -- not because the models fit well with reality. Even so, there are nuggets of wisdom to be gained from such childish, creative modelling. Think of changing a kid's mind for the better (i.e., teaching a kid). The best way to do it is to utilize something that the kid is already focusing on. Let's say the kid is playing with GI Joes and he has the GI Joes turning on one another in a Hobbesian "war of all against all", himself declaring with Plautus that "man is wolf to man!" Now, to teach him civics or the proper morality for man, you might try using an appeal to the military code of justice or some other military code of behavior nestled in moral ideals.
For instance, you might say that GI Joes take an oath to defend each other's lives against aggression -- so that human peace and prosperity can ensue. The child immediately gets it. The learning is almost effortless because the GI Joes were the locus of consideration in the first place. You don't need to draw the child's attention away from his prior focus, you take the focus and you build on it. The point is that you utilize the point of focus or popularity -- the model -- to become an instrument of your own instruction of _________ . (mankind, or whatever). Let's take the Trust Game, for instance. How does it fail to correspond to reality? The 2 main places where it fails are:
1) everybody gets an endowment
2) entrusted money is always tripled
Now, in a market, not everyone gets an endowment -- but we can, to varying degrees, produce value to trade with one other. We can create something of baseline value that can be considered to be akin to the endowment. Also, when we trade, we don't always triple our value. Sometimes, the value is merely doubled, or increased only by half or only by a fourth. At the grocery store, I may only value a liter of bottled water just 50% more than I value a dollar (the market price of the water). In making the trade, I gain 50% on my dollar. I am better off (about 50% better off) with the bottle of water in my hand than I am with the dollar in my pocket. I go ahead and make the trade.
So the endowment represents the productive potential of humans, and the tripling represents the potential gains from trade. Those are real things. Humans really do have productive potential, and there really are gains to be had from trade. One of the findings in Zak's runs of the Trust Game is that folks return 41% of the windfall back to the original moneyholder. Keep in mind that choices are anonymous, so that if you stiff someone who entrusted you with some of their money -- they will not be able to identify you. A question to be asked is, if there are no reputational repercussions, how come everyone doesn't get stiffed? It's because folks want to perpetuate a system of trade to mutual benefit. There's more hope in that than in any alternative. In the long run, a participating individual has a lot to gain from such a system and this knowledge is accessible on different levels.
An even better game is the Public Goods game, where you each start with an endowment and then join one of two investment groups. It suffers from the same 2 drawbacks that the Trust Game does (endowments + guaranteed return-on-investments), but it is more realistic and it is better at modelling a market (or at least being a model of a corporation -- actually, of 2 corporations -- existing inside of a market):
Pooled (invested) money increases by some multiplication factor and is redistributed equally to each member after each round. You can choose to invest however much you want to -- you can even choose to be a free rider (not investing, but still collecting a check at the end of the round). One of the two groups (Group A) explicitly allows for freeloaders, and the other group (Group B) has an organized, but somewhat costly, means to punish them. If you run the game more than about 10 rounds or so, everyone eventually joins the group where the freeloaders are punished. Eventually, even the punishment stops because everyone learns that active exchange is better than passive-but-risky wealth-syphoning.
The moral of this story is that it's best to let humans trade freely and punish one another on a merit-based system of justice (the "Invisible Hand"). Everyone is better off when this is chosen -- and everyone eventually chooses this option (because they all learn that they become better off by "free trade"). So, if we let the markets "decide" who wins and loses -- if we let individual traders vote with their dollars -- everybody is better off. If, however, we decide not to give people the power-of-veto that free trade affords them -- if we force people to do business with others who may have low levels of merit (or produce items of low value) -- then we all suffer.
Game Theory, when viewed appropriately, shows that capitalism is our proper, social ideal.
Ed
(Edited by Ed Thompson on 5/20, 1:13pm)
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According to Nash's theorem, your response in the Trust Game should be simply to keep whatever comes to you, even though you know some other person increased your wealth partly in the hope that you'd reciprocate. ... the unintended consequence of such "rational" behavior--that is, looking out for number one--is for both of you to miss the opportunity to gain by creating a larger pie, then sharing it. ... Yet with all deference to John Nash and his Nobel Prize, the Trust Game shows that rational self-interest is bupkis when it comes to real people. ... With large sums or small, in dollars or dinars, participants almost always behave with more trust and trustworthiness than the established theories predict they will.
