Group 4: Game Theory and Adam Smith: Difference between revisions
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==Utlitiy functions== | ==Utlitiy functions== | ||
Adam Smith uses ''TMS'' to elaborate on the altruistic behavior inherent in human nature. He begins by stating, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” [http://www.econlib.org/Library/Smith/smMS.html | Adam Smith uses ''TMS'' to elaborate on the altruistic behavior inherent in human nature. He begins by stating, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” [http://www.econlib.org/Library/Smith/smMS.html (I.I.1)]. Game theorists have adopted this; In his book, ''Nuts and Bolts for the Social Sciences'', Jon Elster states, “Sometimes we take account of other people’s success and well-being and are willing to sacrifice some of our own for their sake” (52). In their article, “Modeling Strong Reciprocity,” Armin Falk and Urs Fischbacher use this concept to construct a utility function that includes not only an individual’s monetary payoffs, but the other players’ payoffs as well: |
Revision as of 21:46, 1 May 2007
In his book, Game Theory Evolving, Herbert Gintis illustrates the importance of game theory, believing it helps us “ understand the stunning interplay of cooperation and conflict that accounts for the strengths (and weaknesses) of the market economy and our strengths (and weaknesses) as a species” (xxii). By developing mathematical models, game theory predicts outcomes of human interactions. Adam Smith’s theories of human behavior, described in his Theory of Moral Sentiments, can be confirmed with game theoretic models, which justify sympathy as a dominate human trait and explain how altruism can serve one’s self interest.
Utlitiy functions
Adam Smith uses TMS to elaborate on the altruistic behavior inherent in human nature. He begins by stating, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” (I.I.1). Game theorists have adopted this; In his book, Nuts and Bolts for the Social Sciences, Jon Elster states, “Sometimes we take account of other people’s success and well-being and are willing to sacrifice some of our own for their sake” (52). In their article, “Modeling Strong Reciprocity,” Armin Falk and Urs Fischbacher use this concept to construct a utility function that includes not only an individual’s monetary payoffs, but the other players’ payoffs as well: