Life, Morality & Game Theory

[benny]

Ayn Rand, John Locke, and Thomas Hobbes, as well as numerous other thinkers, wholly disagree with you.

Ayn Rand, John Locke, and Thomas Hobbes wholly agree with eyeball since they have all developed sophisticated conceptions of enlightened self-interest.

[cybercoma]

Ayn Rand, John Locke, and Thomas Hobbes wholly agree with eyeball since they have all developed sophisticated conceptions of enlightened self-interest.

Enlightened or not, the essence of human nature for all of them is self-interest.

[benny]

Ayn Rand, John Locke, and Thomas Hobbes, as well as numerous other thinkers, wholly disagree with you.

Locke discusses whether the Law of Nature can be said to be based on man’s self-interest. He rejects the Ancient Greek Carneades’ theory that all men act in the own interest, while he accepts the role that self-interest plays in the Law of Nature, “for the strongest protection of each man’s private property is the Law of Nature, without the observance of which it is impossible for anybody to be master of his own property and to pursue his own advantage.” Yet this is not quite anticipating Adam Smith’s theory of private profit leading to public advantage (Wealth of Nations, 1776), for Locke later accepts Montesquieu’s mercantilist (and ultimately Aristotelian) theory that one man’s gain is another’s loss; but what is of importance here is something we read of later in Hume’s criticism of self-interested pursuits. Some actions we deem moral, Locke remarks, can be personally costly – such as generosity and friendship, and while private profit may enrich some at the expense of others, “justice in one does not take equity away in another.” Similarly, if all were to pursue their own interest, that would imply that the individual would judge his own affairs and that can only lead to chaos, fraud, violence, and hatred. After rejecting self-interest as a justification of natural law, Locke proceeds to reject the argument that utility forms the basis of the moral law. (It is always useful to know that what are often portrayed as 20th Century debates on, say, utilitarianism versus deontology, have a long philosophical pedigree). For Locke, it is not seeking to do good that produces morality, for whatever good does occur arises from the moral law: “utility is not the basis of the law or the ground of obligation, but the consequence of obedience to it.” (This is the position that Immanuel Kant (1724-1804) later espouses in his strict application of duty ethics.)

http://www.iep.utm.edu/l/locke-po.htm

[August1991]

The free market system depends on enforcable contracts. Without enforcable contracts there can be no negotiation for the trade of goods. I doubt Adam Smith said anything different.

I skipped over this above and it deserved a better response.

I agree, Riverwind, that if the two (Sarah and Steven, the two participants) could sign an enforceable contract, then they could possibly negotiate their way to a mutually beneficial cooperative agreement. Unfortunately, this isn't always possible.

Adam Smith's insight was that prices in a market, with a few other conditions thrown in, replaced the need for an enforceable contract. IOW, and this is Smith's point, a market with prices leads cheating, conniving, greedy people like Sarah to cooperate with people like Steven - even though that is not Sarah's intention. Smith understood that markets with prices lead people like Sarah to behave collectively as people like Steven - as if led by an invisible hand.

A price is not an abstract concept - it is the outcome of a process. Without a system of enforcable contracts there can be no negotiation on price.

Spot market contracts are typically unenforceable. As a means to cooperate, a price is robust.

That's an easy one. Life is not a game.

But we use symbols to understand life. This game is a good example.

I can't believe a game on TV has much if anything to do with morality or economics for that matter.

See above.

I think no one really understand Smith if he doesn't understand that for him, The Theory of Moral Sentiments was a much more important book than The Wealth of Nations.

Benny, I must confess that I have not read all of The Theory of Moral Sentiments. I generally thought that it posed more questions than it answered.

As to Smith, here is my favourite quote. It concerns how markets lead anonymous people around the world to cooperate with one another:

"In civilised society (man) stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons."

-----

This video is a microcosm of marriage.

Trust Jerry to come up with the best comment.

I think this video is fascinating in part because the big, fat, bald, white guy is supposed to be the oppressor - and the young, sweet, blonde, innocent girl is supposed to be the victim. Life is not so simple.

Edited April 18, 2009 by August1991

[cybercoma]

August, there's no market here. The two were not exchanging anything. This is a case of two self-interested parties vying for limited resources, not a market system.

Edited April 18, 2009 by cybercoma

[Riverwind]

Spot market contracts are typically unenforceable. As a means to cooperate, a price is robust.

Spot market contracts must be enforceable because they would be useless otherwise (i.e. the party that ended up on the losing side of the deal because of subsequent price changes would always be able to walk away). Even a simple exchange of physical goods like the purchase of a bag of apples at the market requires an enforceable contract, however, in this case the contract is easy to enforce because each side simultaneously fulfills their part of the bargain. If one party reneges then the contract is called off and both parties are where they were before negotiations started.

[benny]

August, there's no market here. The two were not exchanging anything. This is a case of two self-interested parties vying for limited resources, not a market system.

Because this game has happened before a wide public, I imagine easily a new market being created precisely because all defecting players like Sarah become identifiable lemons.

http://en.wikipedia.org/wiki/The_Market_for_Lemons

[August1991]

August, there's no market here. The two were not exchanging anything. This is a case of two self-interested parties vying for limited resources, not a market system.

Cybercoma, this game is interesting because it offers an obvious Nash solution: both should steal.

[if the game had been better designed (IMHO), both would have gone home with 10,000 if they had both cheated.]

Were they exchanging anything? Of course they were. They were dividing up the "spiles". As to your comment about limited resources and the market system, I'll accept that as a first approximation of life. In such a life, many self-interested parties seek limited resources. A market with prices at least decides the issue clearly.

Because this game has happened before a wide public, I imagine easily a new market being created precisely because all defecting players like Sarah become identifiable lemons.

Markets by definition are anonymous.

Spot market contracts must be enforceable because they would be useless otherwise (i.e. the party that ended up on the losing side of the deal because of subsequent price changes would always be able to walk away).

Spot markets presumably involve full information. Before the deal, I check the apple and you check my credit card.

Riverwind, I am asking you to go back thousands of years and imagine how innovative the idea of a number, a price, a clear term of trade could be. As others before him, Adam Smith understood that cooperation is better than competition for the collective. Smith's insight was that markets with prices lead to cooperation.

Smith's insight is still revolutionary and this OP's video explains partly why.

[benny]

Markets by definition are anonymous.

Information is a marketable product.

[cybercoma]

I agree, this game is interesting.

But were they dividing the spoils? What they were doing, perhaps in my opinion only, was vying for a resource which neither of them possessed yet. I'm terrible at analogies, but here's an attempt.

In a market system, you have apples and I have something else of value--let's say oranges. You would like to have some oranges and I would like to have some apples, so we make an exchange based on various factors.

In this game, however, neither you nor I have anything. There is an apple tree and we would both like the apples. If we both pick apples, we'll each get 50%. If you kill me, you'll get 100% of the apples. If I kill you, I'll get 100% of the apples. If we kill each other, neither of us will get anything. I disagree that this is a market system which can be analyzed through Adam Smith's philosophies.

I may be wrong, so I'm open to being convinced that it is a market. I just don't yet see how it is.

[benny]

I disagree that this is a market system which can be analyzed through Adam Smith's philosophies.

I may be wrong, so I'm open to being convinced that it is a market. I just don't yet see how it is.

You are right I think. The whole idea of game theory is that if economic agents cannot agree ex ante on how to share a trade surplus, then there will not be any trade surplus to share.

[August1991]

as for game theory...This is the generalized form of the 'prisoners dilema' with money offered instead of jail time. In a one shot event, such as the linked game, stealing may be a fine option, but over the long term (multiple playing of the game), splitting is the smart option.

Prisoners Dilemma

This BBC show is a bad but dramatic rendering of the prisoner's dilemma.

Adam Smith anticipated the dilemma.

I knew Hollywood was wrong when I saw A Beautiful Mind.

If he and his friends all hit on the same woman, Nash reasons, they'll devastate one another's chances while letting other, slightly less desirable, women get away. "Adam Smith needs revision!" he declares triumphantly. To his baffled classmates, he explains: "Adam Smith said the best result comes from everyone in the group doing what's best for himself, right? Adam Smith was wrong!" The message: Sometimes it's better to cooperate!

Well, duh. Does anyone believe that the benefits of cooperation could have eluded the astute Adam Smith?

Other than Smith's basic observation, I have yet to see anyone suggest a better solution to get us collectvely out of this problem.

Edited April 18, 2009 by August1991

[Peter F]

This BBC show is a bad but dramatic rendering of the prisoner's dilemma.

Adam Smith anticipated the dilemma.

I knew Hollywood was wrong when I saw A Beautiful Mind.

Other than Smith's basic observation, I have yet to see anyone suggest a better solution to get us collectvely out of this problem.

You've lost me; Get out of what problem?

[Peter F]

But were they dividing the spoils? What they were doing, perhaps in my opinion only, was vying for a resource which neither of them possessed yet. I'm terrible at analogies, but here's an attempt.

In a market system, ... I disagree that this is a market system which can be analyzed through Adam Smith's philosophies.

I may be wrong, so I'm open to being convinced that it is a market. I just don't yet see how it is.

I think you are correct. There was no market here but there was competion for a finite resource. Adam Smith has nothing to do

with this.

But this game involved much more than getting money. The crucial element of this televised game was wich player is going to be the fool? To avoid looking like the fool both players had to steal. If looking like a fool was not of primary importance to a player then they would split. That is really what this game was about: Looking foolish on TV.

Edited April 18, 2009 by Peter F

[August1991]

You've lost me; Get out of what problem?

Out of the Prisoner's dilemma.

Le Dilemme du prisonnier.

Edited April 18, 2009 by August1991

[Peter F]

The Prisoners' Dilmme!

Thats a problem? How so?

[August1991]

Thats a problem? How so?

Have you seen A Beautiful Mind?

Peter F, see it, then we'll talk.

Edited April 18, 2009 by August1991

[Peter F]

Have you seen A Beautiful Mind?

Peter F, see it, then we'll talk.

I have.

[Riverwind]

Spot markets presumably involve full information. Before the deal, I check the apple and you check my credit card.

You are still describing an enforceable contracts - both parties simultaneously verify that the other lived up to the negotiated terms. If one or both sides fails to live up to the terms the deal is off. In the game show they negotiated terms but when it came time to complete the transaction the woman reneged (i.e. provided a bad credit card) but still got to keep the apple.

That is why there is no comparison between the game and an market transaction.

As others before him, Adam Smith understood that cooperation is better than competition for the collective. Smith's insight was that markets with prices lead to cooperation.

The cooperation is enabled by the enforcable contract. The price is nothing but a formalization of the terms of the contract. The OP illustrates why there can be no cooperation for mutual benefit unless there is a basis for trust. An enforcable contract creates the basis for trust.

[benny]

I think that this game resembles a poker game in which two players are allowed to use language to detect bluffs. Game theory has something to say about what Steven should have said to detect the truthfulness of Sarah in the signaling game he played with her.

[August1991]

The cooperation is enabled by the enforcable contract. The price is nothing but a formalization of the terms of the contract. The OP illustrates why there can be no cooperation for mutual benefit unless there is a basis for trust. An enforcable contract creates the basis for trust.

Riverwind, are you Japanese? Chinese? Uh, German?

[benny]

Riverwind, are you Japanese? Chinese? Uh, German?

Mechanism design is a worldwide endeavor.