From Gary Dymski

["G. Langer" <glanger@xxxxxxxxxxxxxxx>]

>From Gary Dymski:

I'd like to reply to Brent McClintock's last posting concerning his
original question -- how does the emergence of game theory undercut or alter
mainstream economics?  And, can "we" use it?

To me, game theory per se doesn't undercut mainstream theory.  I think instead
of Walrasian GE as a reference point, with its suffocating conclusions about
how all would be for the best in the best of all pre-coordinated worlds.
That conclusion was of course held up for many of us in grad school as the
highest scientific achievement possible and, at the same time, a proof of
the efficacy of the mainstream techniques.

Some important work since then has shown that there was less there that was
claimed -- esp. E. Roy Weintraub's _Microfoundations_ (1979, CUP) and
Ingrao and Israel's _The Invisible Hand_ (1991?, MIT).

In terms of formal results per se, lots of things can knock out the WGE
results.  Killing off precoordination can do it; transaction costs can do
it; but esp. damaging is to assume incomplete markets.  Once there are
incomplete markets, there is an infinity of equilibria.  This then destroys
the one-to-one relationship between preferences/endowments/technology,
on the one hand, and market-allocation-ecstacy, on the other.

There are a number of ways of expressing or capturing the notion of incomplete
markets.  One can think about the Post Keynesian analysis of uncertainty
this way -- that is, there are lots of things out there that are uncontract-
able, and unpredictable, etc.  Some incomplete-market situations can be
thought of as principal/agent scenarios.  What makes these scenarios interest-
ing is precisely that the outcomes are ex ante indeterminate -- that is,
that the principal and agent are moving over an incompletely defined market
space (rather, over an incomplete market space).

So there are some things that can be brought in that are normally excluded
from analysis.  For example, in some game scenarios _conjectures_ and _be-
liefs_ play a big part in finding solutions.  There are still, however,
very specific "rules of the game" for using any specific brand of game
theory; and these "rules" are derived from the mathematical requirements
for beating even weak statements about "solutions" or equilibria out of
any given set of initial conditions.

Thus, while game theory models are more interesting to play with, this
is only because the scenarios they are used to capture are more interesting.
This doesn't however mean that you can bring "everything" into these models.
Power relations can be brought into game scenarios, in my mind, in only a
limited way.  Tracy Mott has a great paper on this, which will be published
in a book that Roy Rotheim is editing on New Keynesian economics. Defining
the rules of the game is power; but then the game itself may not be so
interesting.  I haven't thought about cultural relations in a game context,
but I imagine that is another weak spot.

For me, game theory is ultimately a form of discourse.  It is one that
"mainstream" economists are increasingly adopting.  Precisely because it
is adapted to handling infinite-equilibria situations, its use allows
"mainstream" economists to investigate topics and situations they could
not with just Walrasian tools.  This means that game theory does offer a
new arena in which "we" can make contact with "mainstream" economists.
But one's degree of discomfort with cramming social contexts into this ]
limited logical construct may indicate if this is the "game" for you.
There aren't truths _inherent_ in the logical structure of game theory
which tell us how any _real-world_ social situation will come out.  The
game theory formulation of this situation may help one to think about, and/or
help one to enter into a debate or co-thinking process with one's
"mainstream" colleagues.  For me, then, it's just another tool in the
"tool kit", to be used or left on the shelf according to the context of
your aims in any given project.

I have enjoyed the debate  thus far.  Thanks to all who take the time to
make these electronic discourses so rich and interesting!

Gary Dymski
Economics, UC Riverside