The supposed paradox: that game theory necessarily requires rational players to randomize, is therefore a chimera. When a Nash equilibrium calls for the use of mixed strategies, an eductive analysis requires that the probabilities involved be seen as reflecting only the ineradicable uncertainties that a player will necessarily have about what the others will do. Jokes about game theory’s recommending that finance ministers toss coins to decide precisely when to devalue are therefore misplaced: finance ministers can achieve exactly the same effect precisely as they always have – i.e., by using a committee of economic and financial experts.#
In chess, for example, it simply does not makes sense, given the environment in which it is normally played, to attribute bad play by an opponent to a sequence of uncorrelated random errors in implementing… Rather than resort to such a trembling-hand explanation, one would look for some systematic error in the way in which the opponent analyzes chess positions. The detection of such a systematic error will have important implications about the opponent’s expected future play, whereas the observation of a trembling-hand error will have no such implications.#
The same formal game might receive different analyses depending on the environment from which it has been abstracted: i.e., that the analysis of a game may require more information than is classically built into the formal definition of a game.#
When a small amount of incomplete information is introduced, reaching a part of the game tree that was previously off the equilibrium path becomes a very informative event, and this can discontinuously change predicted behavior. #
Even presupposing extraordinary cognitive capacities and levels of patience among the cooperating individuals, there is no reason to believe that a group of more than two individuals would ever discover the cooperative Nash equilibria that the [Folk Theorem] models have identified, and if it were to hit on one, its members would almost certainly abandon it in short order.#
Despite the past decade’s rapid innovation in adapting blockchain technology to new uses, financial intermediation remains elusive except in basic and highly collateralized forms. We introduce the concept of the technical frontier to delimit the kinds of interactions that can feasibly be structured algorithmically among pseudonymous agents, as on a . . .
If there exist no incentive or selective mechanisms that make cooperation in large groups incentive-compatible under realistic circumstances, functional social institutions will require a divergence between subjective preferences and objective payoffs – a “noble lie”. This implies the existence of irreducible and irreconcilable “inside” and “outside” perspectives on social institutions; . . .
This paper draws a distinction between ‘communitarian’ and ‘rationalist’ legal orders on the basis of the implied political strategy. We argue that the West’s solution to the paradox of governance – that a government strong enough to protect rights cannot itself be restrained from violating those rights – originates in . . .