Wednesday, May 23, 2012

Game Theory is a little too hip for Ronald Coase

An interesting quote from an interview with Ronald Coase:
Roberts: “What was your reaction to [game theory] and its influence on the study of the firm?” 
Coase: “I think the influence was wholly bad, because people developed high theoretical approaches instead of approaches based on what actually happens.”
The full interview is here.

So is he saying that the models are bad? Because I actually think game theory does a pretty neat job of showing the different choices people will make when they have incentives. In many cases, you can break down the relationships that are happening in a firm or institution.

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