The Limits of Rationality

Economic Fables, Ariel Rubinstein, Open Book Publishers, pp.253

Introduction

Economic Fables is part memoir, part description of a work life that single-mindedly engaged with one of the most fascinating fields of Economics- Game theory.  Rubinstein began his incessant engagement with this field since he was thirteen, learning the importance of mathematical logic, the construction and importance of economic models to explain reality and the most difficult variable that all game theorists had to grapple with- human behaviour. Rationality is only one of the many ways of understanding human choices and financial gain is only one of the utilities humans consider while making decisions. While Game theory has had wide implications in understanding and demystifying human decision making, it is also important to separate the myths of what economics can perform from the magic of the actual power of the discipline. In a way this book cautions us from applying neat theories to reality with a caveat that the difficulty is not capricious human behaviour that overrides rationality but the values that people hold of which rationality is only one. In another way, this work is a generous acknowledgement to those that went before Rubinstein- from John Nash to Amartya Sen, Amos Tversky to Daniel Kahneman.

The Idea of Models as Fables

The heart of the book is the idea of Economics as a kind of story telling that helps us understand the world better. ‘In economic theory as in Harry Potter, the Emperor of new clothes or the tales of King Solomon, we amuse ourselves in imaginary worlds,’ explains the author. Rubinstein’s somewhat eclectic introduction to the theory is responsible for this way of thinking. Speaking of his earliest influences, he acknowledges a teacher whose lucid mathematical proofs he devoured along with Sen’s Collective Choice and Social Welfare.

This simultaneous engagement prodded him to explore the vistas of modelling with the traps that comes with uncritical attitude. He elaborates that models might seem simplistic and even unrealistic, but it is the only way ‘to clarify concepts, evaluate assessments, verify conclusion and acquire insights.’ However, since the storytelling takes place in the house of Mathematics, formal language can be both clarifying as well as clouding. The meaning of clarity does not necessarily mean the idea of scientific temper. Mixing up these two, the common perception is that whatever is modeled has predictable value. Rubinstein cautions against this belief by illustrating modeled examples to real world situations in economic crisis and geo-political contentions.

Meeting Nash

The most interesting part of this book is the implicit references and vignettes on John Nash, the most important contributor to Game theory in recent times. Rubinstein encounters Nash metaphorically all through his academic life and finally one winter morning in 1994, the year Nash wins the Nobel prize, actually strays into him. In this wonderful encounter, Nash is revealed as an absorbed genius rambling through the Princeton landscape, always surprised at the impact of his own work on others. The author ponders as he teaches Game theory whether it would lead the students into self-centred deviousness. In the last part of the book, the entire discipline is prismatically analysed through interdisciplinary realm.

This book is written in simple yet provocative style and it never fails to engage and amuse the reader. Economic conundrums are placed before the reader with powerful illustrations. In the end, the book tries to critique both the powers and limitations of the growing discipline that Economics has become in the twenty first century.