Beyond non-cooperative behaviour

Date: Wed, 10 Dec 2008 17:21:58 +0200 (EET)
From: Cathy Nangini

Moi!

i got pretty side-tracked today when reading a paper for our journal club here, but it got me reading this paper: Sally, Phil Trans R Soc Lond B (2003). (see attached)

essentially, Sally states that a player's strategy in a game is more than just the "asocial utility equation" that gives the outcome of a player's move as a function of that person's payoff (eqn 2.1). But rather, this eqn should be modified to
include the player's "perceived and psychological distances" from the other players (eqn 4.1). For example, it has been found that "psychological similarity and amiliarity will support prosocial behaviour" in games like the Prisoner's Dilemma (which, on a purely logical level, promotes non-cooperative behaviour as the best outcome).

so, i don't know anything about game theory, and in fact i'm terrified of games mostly, but i bet that we could look at the sub-prime crisis in this modified game theory approach and show that it is the psychological closeness among cronies that lead to their mutually-benefiting but criminally fraudulent behaviour.

ie: why is it that Moody's, Goldman Sachs, S&P etc participated in the fraudulent bundling and approval of bad morgages whereas other financial institutions did not? Why is it that Paulson, the US Treasury Secretary that got handed 700 billion to bail out these institutions, used to be head of Goldman Sachs? I see a list of personal connections a mile long here...which means that their "prosocial behaviour" was, and will be, limited to their own "psychologically close" group members. Which explains why they authored the sub-prime disaster to maximize their payoff at the cost of everyone else, and makes one suspect that Paulson's "fix" will no doubt subserve the same group.

the question i have is: can we actually show this? does anyone know how to use the eqns in this paper?

i think this would be a fun, informative, and proactive exercise!!