Modeling Rational Agents: From Interwar Economics to Early Modern Game Theory

Published by EH.NET (December 2003)

Nicola Giocoli, Modeling Rational Agents: From Interwar Economics to Early Modern Game Theory. Cheltenham, UK: Edward Elgar, 2003. x + 464 pp. $125 (cloth), ISBN: 1-84064-868-6.

Reviewed for EH.NET by Esther-Mirjam Sent, Department of Economics and Policy Studies, University of Notre Dame.

During recent months, the listserv of the History of Economics Society has witnessed a heated exchange among David Colander, Roy Weintraub, and others who lined up behind either “thin” or “thick” history of economics (see http://eh.net/HE/heslist/listarchive.php). In the discussions, thin history was associated with the conventional exegetical approach to the history of economic ideas, or literature reviews with a broader sense of the literature and the context of the times. Posters to the list seemed to agree that this is the type of history that belongs in economics departments. Thick history, on the other hand, is concerned with the relationship of economics to other disciplines and the involvement of economic ideas in the economy and various other social processes. As such, this is the type of history that is more at home in history departments. Another contrast that may be drawn is between rational and historical reconstruction (see Khalil 1995; Rorty 1984), where rational reconstruction (or a Whiggish perspective) starts from the idea that the theory from one school could be extracted, without much violence, from the author’s body of thought, its underpinning vision, and its environmental context. Historical reconstruction (or a contextualist perspective), on the other hand, is based on the premise that the extraction and comparison of peripheries without regard to their respective bodies of thought or historical context imminently violates the constitution of one theory in favor of another.

What Nicola Giocoli offers in Modeling Rational Agents: From Interwar Economics to Early Modern Game Theory is thin history, or rational reconstruction. Ignoring historical contingencies, personal vicissitudes, academic relations, funding availability, and so on, he focuses almost exclusively on written texts. These lead him to claim that the period from roughly 1900 to 1970 was characterized by a change in the image of economic knowledge resulting in a change in the body of knowledge. More specifically, Giocoli argues that the image of knowledge in economics shifted from systems of forces to systems of relations. Along the way, the body of knowledge moved from rationality as maximization to rationality as consistency, as well as from processes to conditions, from an interest in behavior to formal representation, from calculus to topology, from physics to mathematics, and so on.

In Giocoli’s opinion, the transition in the image of knowledge in economics and the accompanying shift in the body of economic knowledge helps to explain the fall and rise of game theory. Briefly, Modeling Rational Agents argues that the period up to World War II was characterized by an escape from psychology as well as an escape from perfect foresight. Whereas the former connected with the systems of relations image, the latter was congruent with the systems of forces one. In other words, economics found itself in a stalemate around the Second World War, in Giocoli’s analysis, with the discipline slowly transitioning to the systems of relations view in the Post War period. During this gradual shift, Von Neumann and Morgenstern’s approach to game theory and its supposed focus on forces went against the tide in the discipline. Giocoli claims that Nash’s interpretation of game theory was beset by other difficulties retarding its acceptance by mainstream economics. In particular, Nash Equilibrium presumably lacks a compelling interpretation and can be understood as a fixed point or in rationalistic terms. Whereas the former was adopted, it was also the one that matched the systems of relations image. In Giocoli’s opinion, it was not until economics had completed the transition to the systems of relations view that it was ready to embrace non-cooperative game theory. He concludes: “It was the transformation of neoclassical economics in the direction of the consistency view of rationality and, more generally, of the SOR [systems of relations] image that made possible the rise of non-cooperative game theory and NE [Nash Equilibrium] to their current outstanding role” (p. 342).

As a result of its focus on thin history, or rational reconstruction, Modeling Rational Agents is bound to be subject to the same kinds of criticisms expressed on the HES List. As Rorty (1984, p. 54) perceptively notes, rational reconstructions are not likely to converge, and there is no reason why they should. Nevertheless, the lessons one can draw from the thin approach adopted by the author are unclear. Giocoli makes it seem as if twentieth century economists were mere pawns in an inevitable grand scheme. What do we learn from this about the discipline of economics? And if there has indeed been a transformation in the image of economics, then how can the recent embracement of bounded rationality on the part of game theorists, rational expectations economists, and the like be understood (see Sent forthcoming)? Despite Giocoli’s claim that “the two key innovations brought about by the SOR [systems of relations] image were the triumph of the consistency view of rationality and the abandonment of the learning problem” (p. 346), recent developments mark a move away from rationality as consistent behavior and towards an interest in learning on the part of economic agents. In addition, the reader is frequently left with more questions than answers. Can the rich history of economics during the twentieth century be captured convincingly by a simple, smooth, and logical narrative that focuses on shifts from forces to relations?

Regardless, Giocoli’s book is an impressive tour de force that relies on extensive and expansive literatures. It should be required reading for anyone desiring a new perspective on the history of economics in the previous century.

References:

Khalil, Elias L. 1995. “Has Economics Progressed? Rectilinear, Historicist, Universalist, and Evolutionary Historiographies.” History of Political Economy, 27: pp. 43-87.

Rorty, Richard. 1984. “The Historiography of Philosophy: Four Genres.” In Richard Rorty, Jerome B. Schneewind, and Quentin Skinner, eds., Philosophy in History: Essays in the Historiography of Philosophy, pp. 49-75. Cambridge: Cambridge University Press.

Sent, Esther-Mirjam. Forthcoming. “The Legacy of Herbert Simon in Game Theory.” Journal of Economic Behavior and Organization.

Esther-Mirjam Sent is Associate Professor of Economics and Faculty Fellow of the Reilly Institute for Science, Technology, and Values at the University of Notre Dame. She is the author of The Evolving Rationality of Rational Expectations: An Assessment of Thomas Sargent’s Achievements (Cambridge University Press, 1998) and the editor, with Philip Mirowski, of Science Bought and Sold: Essays in the Economics of Science (University of Chicago Press, 2002).