VII. Time Inconsistencies

People tend to lose control of their actions or procrastinate because they place greater importance (greater "weight") on present and near future than on far future. This makes them both irrational and unpredictable.

VIII. Positivism versus Pragmatism

Should economics be about construction and testing of of models, which are consistent with basic assumptions? Or should it revolve around mining of data for emerging patterns (=rules, "laws")? On one hand, patterns based on a limited set of data are, by definition, inconclusive and temporary and, therefore, cannot serve as a basis for any "science". On other hand, models based on assumptions are also temporary because they can (and are bound to) be replaced by new models with new (better?) assumptions.

One way around this apparent quagmire is to put human cognition (=psychology) at heart of economics. Assuming that human is immutable and knowable - it should be amenable to scientific treatment. "Prospect theory", "bounded rationality theories" and study of "hindsight bias" and other cognitive deficiencies are fruits of this approach.

IX. Econometrics

Humans and their world are a multi-dimensional, hyper-complex universe. Mathematics (statistics, computational mathematics, information theory, etc.) is ill equipped to deal with such problems. Econometric models are either weak and lack predictive powers or fall into traps of logical fallacies (such as "omitted variable bias" or "reverse causality").

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com.

Visit Sam's Web site at http://samvak.tripod.com

Acts are either means to an end or ends in themselves. This is no infinite regression. There is bound to be an holy grail (happiness?) in role of ultimate end. A more commonsense view would be to regard acts as means and states of affairs as ends. This, in turn, leads to a teleological outlook: acts are right or wrong in accordance with their effectiveness at securing achievement of right goals. Deontology (and its stronger version, absolutism) constrain means. It states that there is a permitted subset of means, all other being immoral and, in effect, forbidden. Game Theory is out to shatter both notion of a finite chain of means and ends culminating in an ultimate end – and of deontological view. It is consequentialist but devoid of any value judgement.

Game Theory pretends that human actions are breakable into much smaller "molecules" called games. Human acts within these games are means to achieving ends but ends are improbable in their finality. The means are segments of "strategies": prescient and omniscient renditions of possible moves of all players. Aside from fact that it involves mnemic causation (direct and deterministic influence by past events) and a similar influence by utility function (which really pertains to future) – it is highly implausible. Additionally, Game Theory is mired in an internal contradiction: on one hand it solemnly teaches us that psychology of players is absolutely of no consequence. On other, it hastens to explicitly and axiomatically postulate their rationality and implicitly (and no less axiomatically) their benefit-seeking behaviour (though this aspect is much more muted). This leads to absolutely outlandish results: irrational behaviour leads to total cooperation, bounded rationality leads to more realistic patterns of cooperation and competition (coopetition) and an unmitigated rational behaviour leads to disaster (also known as Paretto dominated outcomes).

Moreover, Game Theory refuses to acknowledge that real games are dynamic, not static. The very concepts of strategy, utility function and extensive (tree like) representation are static. The dynamic is retrospective, not prospective. To be dynamic, game must include all information about all actors, all their strategies, all their utility functions. Each game is a subset of a higher level game, a private case of an implicit game which is constantly played in background, so to say. This is a hyper-game of which all games are but derivatives. It incorporates all physically possible moves of all players. An outside agency with enforcement powers (the state, police, courts, law) are introduced by players. In this sense, they are not really an outside event which has effect of altering game fundamentally. They are part and parcel of strategies available to players and cannot be arbitrarily ruled out. On contrary, their introduction as part of a dominant strategy will simplify Game theory and make it much more applicable. In other words: players can choose to compete, to cooperate and to cooperate in formation of an outside agency. There is no logical or mathematical reason to exclude latter possibility. The ability to thus influence game is a legitimate part of any real life strategy. Game Theory assumes that game is a given – and players have to optimize their results within it. It should open itself to inclusion of game altering or redefining moves by players as an integral part of their strategies. After all, games entail existence of some agreement to play and this means that players accept some rules (this is role of prosecutor in Prisoners' Dilemma). If some outside rules (of game) are permissible – why not allow "risk" that all players will agree to form an outside, lawfully binding, arbitration and enforcement agency – as part of game? Such an agency will be nothing if not embodiment, materialization of one of rules, a move in players' strategies, leading them to more optimal or superior outcomes as far as their utility functions are concerned. Bargaining inevitably leads to an agreement regarding a decision making procedure. An outside agency, which enforces cooperation and some moral code, is such a decision making procedure. It is not an "outside" agency in true, physical, sense. It does not "alter" game (not to mention its rules). It IS game, it is a procedure, a way to resolve conflicts, an integral part of any solution and imputation, herald of cooperation, a representative of some of will of all players and, therefore, a part both of their utility functions and of their strategies to obtain their preferred outcomes. Really, these outside agencies ARE desired outcomes. Once Game Theory digests this observation, it could tackle reality rather than its own idealized contraptions.

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com.

Visit Sam's Web site at http://samvak.tripod.com