Game Theory II

One of the basis tenets of game theory is the idea that the players must be acting rationally. This lead to considerable discussion about how often times people don’t act rationally in buying or selling.

Jim’s response was:

Game theory makes the assumption of rationality because this makes it easier to study human behavior. There are so many ways people can be irrational, that when you abandon the rationality assumption it’s very difficult to come to any conclusion. Economists would argue, however, that in business that firms which are not rational will tend to lose out to those which are.