“In the real world (even the one of spherical chickens), there aren’t any interesting complete information games.”

If you mean “interesting” the way most people do then this is clearly not true, since chess itself is interesting. For a game with more than two players, I suggest you look at Puerto Rico:
http://www.boardgamegeek.com/game/3076
The only element of incomplete information is that the plantation tiles are shuffled, but this is a rather minor element of gameplay and I contend that if you laid out all the plantation tiles face up in a sequence at the beginning it would still be an interesting game.

I’m guessing what you are referring to is the following: in a generic finite extensive-form game of complete information, backward induction yields a unique pure strategy Nash equilibrium. However, note the word “generic”—it is possible to construct interesting examples. I did so in my thesis:
http://math.berkeley.edu/~datta/thesis.pdf
on pp. 48-52 (pp. 60-64 of the PDF). In this example, unlike in generic extensive-form games, there are mixed Nash equilibria, and for various reasons the game is unpredictable; both the first and last players will randomize their moves.

“…most people act the way you expect”
This is exactly wrong, particularly when considering economics. Simple example: why buy an iPOD over a Zen? The Zen is cheaper and functionally equivocal. Answer: because the iPOD looks better. This is an aesthetic appeal and is a wholly emotional reaction. Economic models simply cannot factor an intangible such as this into any model as they cannot reliably predict human reactions any more than any human can. Ask the record companies who turned down the Beatles if you’re unsure of this line of argument…

Econometrica, 1984, round about page 1040.

Several articles about Rationalisable expectations.

Essentially, what these articles argues – and that I didnt have the maths to follow – is that expectations were not rational, but rationalisable, because information is costly, and information about information is also costly.

The logic is that the single most valuable fact about price information was that they embodied that someone was putting a value on what you held, but that information embodied what they thought someone else would pay for that information.

This “fit” with what I saw in “the real world” specifically what Alan Bond overpaid for Kerry Packer’s Channel Nine (“You only get one Alan Bond in your life, and I’ve had mine”).

Now, you cannot rationally assess what someone else would pay for an asset – you can only make a rationalisable view on that, because you need to make a n-th order decision on what you will pay to verfity what you think is true about the information you hold.

This is because after you do that you need to figure what you’ll pay to verify if what you think is true. And then you’ll need to figure out what you’ll pay to verify what you paid to verify what you think is true, about what you think is true, and so on. And so infinitum.

I thought you could solve this with automata – build a similation of market, with automata that carry out various strategies,and then successful automata copy themselves, and we could figure out how markets work that way.

But then I couldnt see a solution to automata that change strategy.

Ian Whitchurch

The 2 cases you cite are fundamentally different in that chess is a finite complete-information game, and as such there exists a well-defined perfect strategy that allows the advantaged player (presumably white, though it’s not known) to never lose (i.e. to always at least tie). Tic-tac-toe is the analog game where this is known to every 10 year.
In the real world (even the one of spherical chickens), there aren’t any interesting complete information games.

This is what economists try to do with designing auction rules. So not having a rule book isn’t a problem, as you’re using game theory to design the rulebook.

Unfortunately there is no reason to believe that economists in government are far brighter than economists in business, so there is generally an iterative process as the players figure out how to game the rules. But this happens with every set of regulations or laws and therefore is not a strong criticism of game theory.

Also, game theory has taught environmental regulators that it’s a very good idea to avoid rules that set up a prisoners’ dilemma situation with no way for parties to evolve stable cooperative strategies. (Yes, I know that a lot of people cooperate in prisoner’s dilemma experiments. But if you set it up so people can’t know who they’re playing against and therefore can’t cooperate and play multiple games, cooperation goes down over time. I assisted my uni professor in running one of these experiments).

As for maths in economics, I think it’s important as putting your thinking into mathematics makes it clear what you’re assuming and what you aren’t. I find it very hard to rigorously handle the interactions of several variables while working entirely in prose. By rigorously I mean not forgetting about one of them (or one or more of the possible interactions) halfway through. Perhaps the maths should be burnt afterwards – but it’s an important step for all us sub-genius folk.

Then, when people don’t do that, you have a framework for figuring out why, and what parts of the rational calculus they’ve modified with their own tendencies.

Or if they do follow it, you have at least a prima facie explanation for why they did what they did.

Game theory would be a good tool for RCT, except that people don’t make decisions that way. So the underlaying assumption is in error. Furthermore, RCT assumes that people actually think about the consequences of their actions. Another fatal blow for RCT.
__

The comment above deserves remarking on. People may behave rationally, i.e., as if they are explicitly following RCT, while in fact they are engaging in RPD. This happens when over time our responses evolve to those that are “rational”. In cognitive architecture research such as on Soar, this would be explained by “chunking,” a learning mechanism which puts away as rules little bits & pieces of rational behavior that at one time might indeed have been generated by deliberate rational behavior. This is an example of an explanation where rationality does not have to arise from being deliberately “rational” every instant.

In contrast are psychological and social phenomena where individual limits on rationality end up haring a different behavioral outcome in comparison with outcomes that would be predicted on the assumption of no limits to rationality. Herb Simon got the Nobel for his exploration of “bounded rationality.”

In short, one needs to be careful about what consequences follow from theories such as Klein’s.

Well, turns out if you have enough information about the market and the players on the market, you can calculate the optimal price. That’s not predicting Kissinger, but it’s something.

And Marcus makes a good point.