I learned of Ben Polak through his course Econ 159, available online through Open Yale Courses (see my review). In addition to being a superb teacher, Polak is an expert on decision theory, game theory, and economic history. His work explores economic agents whose goals are richer than those captured in traditional models. His contributions to game theory range from foundational theoretical work on common knowledge, to applied topics in corporate finance and law and economics.
Most recently, he has made contributions to the theory of repeated games with asymmetric information. Other research interests include economic inequality and individuals’ responses to uncertainty. Professor Polak is currently engaged in an ambitious empirical project that tackles questions of industrial organization in the setting of industrial revolution in England. For a list of his achievements, awards, and selected papers visit his Yale School of Management page.
Polak was kind enough to answer a few questions by e-mail.
Austin Frakt (AF): The overarching hook of Econ 159 was to build toward a game theoretic model of human cooperation. In doing so, more and more aspects of human behavior were discussed and incorporated. What is the current and historical relationship between game theory and behavioral economics? How has one influenced the other?
Ben Polak (BP): Some of the best work in behavioral economic theory is directly about games, Matt Rabin’s work for example. Behavioral economics naturally introduces some new game-theoretic issues. For example, in many behavioral models, the agents’ preferences are not “dynamically consistent”. This means that what they may want to do tomorrow may not be what they want today for themselves to do tomorrow. If the agents anticipates this, then they are going to be playing a game with themselves. Many of the ideas from the class – such as backward induction – take on a new importance. The agent now has to anticipate and roll back what she will do tomorrow to decide what she should do today. And ideas like commitment take on a new role: agents may want to commit themselves not just influence others choices (like burning the boats) but simply to control the scope of their future selves’ choices.
AF: Nash is so closely associated with game theory. How much of the content of Econ 159 was pioneered by him? Which is due to the more recent work of others? Where is the frontier today?
BP: Nash introduced the notion of Nash equilibrium but, at the time he was working, most of the work was on cooperative game theory rather than non-cooperative game theory. So, for example, bargaining over a pie was analyzed on the basis of normative axioms rather than strategic choices. One of Nash’s major papers was on normative bargaining solutions but another paper introduced a game in the sense we discuss in the class, and showed that the outcome suggested by normative criteria would be the outcome that would result in this game. That paper set off a whole literature called “the Nash program”: the attempt to find games that produce particular ‘desirable’ outcomes. The last Nobel prize given to game theorists (that given to Maskin, Myerson and Hurwicz) was given for studying “mechanism design” which (in a sense) is the field that descended from Nash’s first paper. The early pioneers of game theory – Nash, Shapley, Shubik, von Neumann, Scarf – were (and are) extraordinary minds.
AF: The game theoretic problems approached in 159 are, by necessity, simple enough to understand and analyze “by hand.” No doubt there are vastly more complex problems and models for which one requires the aid of computer. What are the common computational packages and approaches? Are there parameter estimation algorithms that one could say are the analog of standard econometrics? What are some really big and important problems that are addressed with such things?
BP: Here I am a bit out of my field when it comes to specific packages. But one of the main advances in econometric economics in the last two decades has been the introduction of so-called structural models. Typically, these models are game-theory based and the econometric techniques use features of equilibria to help identify parameters in the model. Two major examples are the econometric models used to estimate demand first for items such as cars and second behind bids in auctions. These econometric models have revolutionized empirical studies of industry. Hand in hand with this is a literature on computing equilibria in (possibly complicated) games. Again, one use is in analyzing the data.
AF: Do you teach other classes at Yale and might they one day be available via Open Yale Courses? (Would it help if I begged?)
BP: Well, for my sins, I am about to take over as chair of economics at Yale. Once that is over, I would like to develop a new course and (if it works well) I would like to try to have it added to the open courses. In the meantime, Bob Shiller’s wonderful course on Financial Markets is available [reviewed on this blog]. And we are hoping that, one day soon, John Geanakoplos’s superb course on Financial Theory will be available. John is one of the most inspiring teachers at Yale, so I am looking forward to it.