Paul Jacob

Take economics. The Tough Stuff of the science, the real theory — the math, the models, all that — is mostly beyond me. I simplify what I learn down to a few kernels that I call Truths. You know:

  1. People make mistakes, but can learn from them; it's easier to learn from your own than someone else's.
  2. When trading, both parties expect to gain, and usually do. There's no equality involved, except in the sense that both parties do have that same reasonable expectation to gain.
  3. Other transactions, like in government, usually amount to taking from A and giving to B, with a nice cut for C in the process. All parties can't win in this scenario.

Which brings me to game theory . . . which I'm pretty sure I read about before I saw A Beautiful Mind. It turns out that there's a deep connection between some basic economic ideas and games. Take my third truth-kernel, above. That distinction can be made in game theory terms, between positive sum and zero sum games.

Market interaction, at its base, is positive sum, where both parties win (I want your radish, you want my dollar; we exchange; we're both better off).

In a zero sum game, one person wins and one person loses (you want my dollar; you whack me over the head; I'm out a dollar and my head's buzzing, and you've got my dollar).

In negative sum games everybody loses (we're both whacking each other over the head, and each comes out . . . behind, and with sore heads).

You could almost define a leftist as a person who sees people trading and thinks someone must be getting gypped. And who then ignores the fact that government programs look a lot more like thefts, on balance: some people pay and others benefit. (Only a few goods, like the rule of law, work out to benefit each of us, all coming out ahead.)

Ah, modern politics! — the art of pretending that an essentially zero sum game like government is really a positive sum game, and, in the process, turning the whole thing into a negative sum mess.

I just belatedly wandered onto a website called Fast Company, which suggests first I'm in the wrong company. Over a year ago (see how far behind I'm in my reading?) the site published a neat little article on game theory in business. While game theory has been all the rage in economics for over half a century, ever since a mathematician and an Austrian economist got together and revised the core notions of economics, it turns out that businesses don't use it. Not a bit. Very droll: What economists proclaim as a key insight is an insight lost on businesses. They just don't bother.

Is that like politicians not bothering with the Constitution?

No.

As I understood economics, the basic theory helps explain what goes on in the world. It's descriptive of patterns, predictive when it can be.

I've tried to wrap my head around "marginal utility," for instance, and I think I understand what economists mean when they talk about it. But they are not saying that people consciously use the idea when they go about their business. They are saying that, when people go about their business, their actions conform to the principle of marginal utility.

Just so with game theory. When we find ourselves in situations (or "pickles," as I like to call them) where we face "prisoners' dilemmas" or games of "chicken" and the like, we behave in rather foreseeable ways. It doesn't mean we consciously call up the Econ 101 we learned umpteen years before and trot it out at a business meeting. Same goes for opportunity cost and marginal utility and what-have-you.

I know engineers who have never used calculus once in their whole careers. Economics is like that for business, I bet. It's the high bar that youngsters are expected to work on, to prove themselves ready for normal drudgery.

Still, we do expect business people to realize that the more and more of a good they offer consumers, the less they can expect to get from each unit. You only need one iPod (if that); the second one is even more a luxury, and a person isn't apt to be equally eager to buy the second one at the same price. That has something to do with marginal utility. Businessmen and even salesmen may not be able to name it, but they know the principle. OK, sometimes they pretend otherwise, like when trying to sell me that bigger, better iPod. But for the most part, those who act as if the principle weren't true don't know business.

So maybe we should expect citizens to understand the ABCs of the game called government, too.

Trouble is, if learning the Constitution has gone out of fashion, then the drudgery continues without ever being checked by that annoying guy with a pocket protector (or Cato's Constitution in pocket) speaking up at a meeting, saying, "Isn't this unconstitutional?"

"Well, yes, goober, but you're not supposed to say that in a meeting. We're practical people here!"


Paul Jacob

Paul Jacob is President of Citizens in Charge Foundation and Citizens in Charge. His daily Common Sense commentary appears on the Web and via e-mail.