Class 3.1: Game Theory

In today’s class we are going to learn just a teensy bit about how game theory can be used to study how people’s goals can put them into conflict in strategic interactions with one another. To do this, we will be reading a selection from the book Morals By Agreement by the philosopher David Gauthier, which is the most prominent modern attempt to develop Hobbes’ moral philosophy.

There are three things that I expect you to have done before class starts on Monday. First, to carefully complete the assigned reading, reading two or three times if necessary. Second, to complete the Daily Quiz. And third, you should have turned in your first Weekly Reflection by Sunday night at midnight, at the latest. Click through the separate calendar item on Sunday for the Weekly Reflection for details.

David Gauthier

David Gauthier was a Canadian moral and political philosopher who taught at the University of Toronto until 1980 and then at the University of Pittsburgh until his retirement. He passed away this past November at the age of 91, and this appears to be the only image of him available online.

Gauthier is most famous for his book Morals By Agreement, first published in 1987, from which we are reading a brief excerpt for today’s class. Morals By Agreement is an attempt to validate some of the central claims of Hobbes’ moral philosophy using the tools of contemporary rational choice theory and contemporary game theory. Gauthier argues that once we adopt the correct theory of rational choice, we can deduce, as Hobbes argued, that it is rational even for selfish, self-interested actors to agree with one another to a code of moral behavior, and likewise that once you have accepted such an agreement, it is rational for even selfish, self-interested actors to stick to it even if they could get away with breaking it. We’re not going to see all of that argument today - just enough background to be able to learn a little bit that we need about game theory and to appreciate that he is thinking about similar issues to Hobbes.

Game Theory

Game theory is the study of rational strategic interaction between two or more people who each have to make choices in light of what choices they anticipate that the other person will make. Game theory contrasts with decision theory, which is the study of individual rational decision. In decision theory, we idealize by separating the choices available to an agent from the states of the world that she might be in (such as whether the die that she rolls comes up even or odd). But in game theory, we ignore uncertainty about the state of the world and focus on the choices of other agents, whose decisions will depend on what they predict that you will do.

In the first part of our reading for today, David Gauthier gives a brief introduction to some of the basic setup of game theory, before going on in a section that I have cut from the reading to explain some important more technical results of the theory and then question what we can infer from those results about the rational choices of real people.

The Prisoners’ Dilemma

In section 3.2 of chapter 3, Gauthier introduces what is known as the Prisoners’ Dilemma, and is perhaps the most famous example from game theory. The Prisoners’ Dilemma has been used to show that when individuals each make choices that appear to be rationally optimal from their own perspective, these individual choices can combine to make all of them worse off. Read this example carefully in order to make sure that you understand why it is rational for each prisoner to confess, and why they would both prefer that neither had confessed to this outcome.

Markets and Externalities

The second part of today’s reading comes from the next chapter of Gauthier’s book, in which he goes on to further discuss the relationship between individually rational choice and the collective good. The key concept in this part of the reading is that of what economists call an “externality”. An externality is a benefit or a cost of some action or choice that is a benefit or a cost to anyone other than the person who is making the choice. When our choices have externalities - when they affect other people - individually rational choices do not harmonize to lead to the socially best outcome.

The Reading

You can find the reading by following the link below. Remember to print it out before reading! Use a pen and highlighter to help you stay focused on what you are reading and keep your thoughts from wandering, as well as to help you remember later what the important parts were and which parts you want to ask about in class.