Econometrica: Jul, 1991, Volume 59, Issue 4
Comments on the Interpretation of Game Theory
The paper is a discussion of the interpretation of game theory. Game theory is viewed as an abstract inquiry into the concepts used in social reasoning when dealing with situations of conflict and not as an attempt to predict behavior. The first half of the paper deals with the notion of "strategy." Its principal claim is that the conventional interpretation of a "strategy" is not consistent with the manner in which it is applied, and that this inconsistency frequently results in confusion and misunderstanding. In order to prove this point, the term "strategy" is discussed in three contexts: extensive games in which players have to act more than once in some prespecified order, games normally analyzed using mixed strategies, and games with limited memory. The paper endorses the view that equilibrium strategy describes a player's plan of action, as well as those considerations which support the optimality of his plan rather than being merely a description of a "plan of action." Deviation from the perception of a strategy as a mere "plan of action" fits in well with the interpretation of the notion "game" which is discussed in the second half of this paper. It is argued that a good model in game theory has to be realistic in the sense that it provides a model for the perception of real life social phenomena. It should incorporate a description of the relevant factors involved, as perceived by the decision makers. These need not necessarily represent the physical rules of the world. It is not meant to be isomorphic with respect to "reality" but rather with respect to our perception of regular phenomena in reality.