David M. Kreps
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283812
- eISBN:
- 9780191596568
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283814.003.0005
- Subject:
- Economics and Finance, Microeconomics
The weaknesses of game theory for purposes of economic modelling are discussed: the theory requires that protocols for interaction are precise (whereas in the real world they are often ambiguous). ...
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The weaknesses of game theory for purposes of economic modelling are discussed: the theory requires that protocols for interaction are precise (whereas in the real world they are often ambiguous). The theory often provides many equilibria and no way to choose among them. Despite work on so‐called refinements of equilibrium, the theory fails to help us understand how individuals react to counter‐theoreticals in dynamic interactions. Equilibria are often very delicate, depending on states of nature that have very small probability a priori. The theory fails to explain how the rules of a particular game got to be what they are.Less
The weaknesses of game theory for purposes of economic modelling are discussed: the theory requires that protocols for interaction are precise (whereas in the real world they are often ambiguous). The theory often provides many equilibria and no way to choose among them. Despite work on so‐called refinements of equilibrium, the theory fails to help us understand how individuals react to counter‐theoreticals in dynamic interactions. Equilibria are often very delicate, depending on states of nature that have very small probability a priori. The theory fails to explain how the rules of a particular game got to be what they are.
