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Is philanthropy a contradiction to Game theory?

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Matt Posted: Sat, Jan 12 2008 6:32 PM

Hey guys I just found out about game theory... I don't understand it... but my gut reaction thus far is rejection of it... I love the free market but I don't accept the game theory... is this posisble? Also to my topic question  does philanthropy contradict the game theory?

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majevska replied on Sat, Jan 12 2008 6:58 PM
I'm not too well versed in game theory, but what specifically do you object to? I think game theory's conclusions depend a lot on how you interpret the data. After all, things like the Nash equilibrium really only say that if you write numbers in various columns representing certain actions various hypothetical "players" of a game could take... you will find that certain options are equilibrium points in which none of the players will gain by unilaterally changing their strategy. How this applies to the real world is up for debate. In "A Beautiful Mind" they claim that Nash's equilibrium "proved Adam Smith wrong," which I believe is a completely absurd interpretation of his equilibrium. Also interesting to note that in the Cold War era, many game theorists interpreted their mathematic discoveries of hypothetical games to mean that the US should preemptively nuke the USSR, something which most people today are glad didn't happen.
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It's not necessary to adhere to game theory to support the free market; but why would you think this is contradictory to it? 


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champthom replied on Sat, Jan 12 2008 8:01 PM

Personally, after actually taking a course in game theory, I think it actually helps back up a lot of things related to free market economics. Game theory shows quite well that people benefit most when they cooperate and players gain the most from doing so. There are some limitations to game theory, but any text on the matter openly admits so and it's just a different way to look at economics. 

Here's a pretty good paper on the subject of Austrianism and game theory and how game theory can back up Austrian economic ideas.

"What meanest thou by seizing the whole earth; because I do it with a petty ship, I am called a robber, whilst thou who dost the same with a great fleet art styled emperor?"- the Pirate's response to Alexander the Great on his charges of terrorism, from St. Augustine's "City of God"
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Grant replied on Sat, Jan 12 2008 8:19 PM

...does philanthropy contradict the game theory?

No. Game theory is a framework similar to praxeology and mathematics, in that it is purely descriptive and doesn't make any assertions about the world. Regarding the "public goods" of charities, game theory says something like:

If there exists a set of actors who are willing to pay for a public good G and unable or unwilling to coordinate with each other, then there will be a tendency for the good to go unfunded. The "if" clause is often false in the real world, but that doesn't make game theory invalid.

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