Saturday, February 9, 2013

The Game of LIfe - Structures of Incentives

If we make the assumption of rationality for every player, we can
make precise predictions about individual behaviour. However, little evidence of
rational calculation was found. It is better to think of the game-theoretic analysis
as telling us not about people but about structures
. It tells what behaviour
is rewarded and what is punished under the rules of the game.
Participants learn
about the game through trial and error.
The link between structure and individual
behaviour is not rationality but learning; and collective learning is

Evolution at the aggregate level is produced both by individual learning and
by the process of entry and exit from the game. Players who do not win, who are
unable or unwilling to use the optimal strategies, tend to exit.
In 1946 the
American Occupation purged over 80 per cent of the prewar incumbents, not
allowing them to run for public office. New, often idealistic, candidates flooded
the field. But the weeding out soon began. The next election was held only one
year later and only 40 per cent of the incumbents chose to run again. Many
winners proved incompetent at politics and others were simply uncomfortable
with the demands of the political game.32 As the prewar conservative ideologues
have retired, they have been replaced by more strategic candidates. As the
nature of the game became known, self-selection tended to produce entrants
whose values fit the structure of the game.

The great advantage of learning and evolution theories over rational theories
is the simplicity of the assumptions. One need only assume that the players value
the commodity being allocated and are capable of adjusting their behaviour
to avoid failure and seek success.

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