From: John Conover <john@email.johncon.com>

Subject: forwarded message from Jud Wolfskill

Date: Wed, 7 Oct 1998 14:06:22 -0700

Attached book is interesting. The concept of Nash equilibrium is the link between entropic economics, game theory, and macroeconomics. The idea is as follows; most economic "games," (like multi-agent, iterated, arbitrage-eg., equity prices,) are indeterminate, ie., there is no solution to the game. However, when the agents play the game, (with an hypothesis, hunch, whatever,) they will succeed sometimes, and fail sometimes, in an unpredictable fashion-meaning that such attempts, over time, will be a fractal, which has stable long term characteristics, and unpredictable short term characteristics. The stable long term characteristics is the Nash equilibrium-which is the equilibrium that macroeconomics is supposed to measure and manipulate. Both authors, Fudenberg and Levine, are respected in the field, and have web pages at http://fudenberg.fas.harvard.edu/, and http://levine.sscnet.ucla.edu/, respectively. John BTW, there is kind of a practicability issue in Nash equilibrium. It is very common to have unpredictable, (ie., happen for no apparent reason,) swings away from equilibrium that run in factors of 2 in a year, (its a fractal, remember-like equity prices, and variations of 2X in a year are average.) So, overreaction and presumptive reaction is common, (ie., we have to do something about the world financial crisis, right now!) What happens when you measure a Nash equilibrium over too short of a time interval? You are misled-that's what. So, what is an appropriate time interval? For most things in infrastructural economics, (like equity prices,) it requires a time interval of 32,000 days, ie., you must measure something each and every day for a century and a quarter. That's the practicability issue. (Note that the concept of doing many little adjustments in little increments along the way will not necessarily converge to the right thing a century later, either. Number one, you can't measure the results of the adjustments along the way, so you don't know which way to adjust things next, and, secondly, such a process is just another random variable in a system dominated by other random variables. So, what's the answer? Suggestions and comments should be forwarded to Alan Greenspan, ASAP.) ------- start of forwarded message (RFC 934 encapsulation) ------- Message-ID: <361A3ADA.5CDB@mit.edu> From: Jud Wolfskill <wolfskil@mit.edu> Subject: Book: The Theory of Learning In Games Date: Tue, 06 Oct 1998 11:44:30 -0400 The following is a book which readers of this list might find of interest. For more information please visit http://mitpress.mit.edu/promotions/books/FUDTHF97 The Theory of Learning in Games Drew Fudenberg and David K. Levine In economics, most noncooperative game theory has focused on equilibrium in games, especially Nash equilibrium and its refinements. The traditional explanation for when and why equilibrium arises is that it results from analysis and introspection by the players in a situation where the rules of the game, the rationality of the players, and the players' payoff functions are all common knowledge. Both conceptually and empirically, this theory has many problems. In The Theory of Learning in Games Drew Fudenberg and David Levine develop an alternative explanation that equilibrium arises as the long-run outcome of a process in which less than fully rational players grope for optimality over time. The models they explore provide a foundation for equilibrium theory and suggest useful ways for economists to evaluate and modify traditional equilibrium concepts. Economics Learning and Social Evolution January 1998 286 pp. ISBN 0-262-06194-5 MIT Press * 5 Cambridge Center * Cambridge, MA 02142 * (617)625-8569 ------- end ------- -- John Conover, john@email.johncon.com, http://www.johncon.com/

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