Is Economics a "Science"?

The scientific approach involves the 4 following steps:

1. Observation
2. Reasoning
3. Formulation of Theory
4. Testing
In the movie "A Beautiful Mind", you can see part of this scientific approach in
use: The scene is set in a bar in which John Nash (played by Russell Crowe) reb
utted Adam Smith's idea that, 'the best result comes from everyone in the group
doing what's best for himself'. Adam Smith had said: "In competition, individual
ambition serves the common good."
But John Nash took an opposing view.
In the movie, he observed what was going on in the bar, in which it was clear th
at all his friends had the same idea.. to go straight for a pretty blond girl wh
o had just walked into the place with her other pretty (but not quite as pretty)
friends. He related to his friends how they could all score if they all didn't
go for the blonde but for her friends instead... He told them that, 'the best re
sult will come where everyone in the group does what is best for himself ... and
the group.' He envisioned a scenario -- a bargaining strategy -- in which nobod
y loses.. Watch how the idea (which was later developed into a theory) was conce
ived after he carefully observed the scene...
In case you missed the dialogue, here's the transcript:
Nash : Adam Smith needs revision.
Hansen : What are you talking about?
Nash : If we all go for the blonde...we block each other. Not a single one of us
is gonna get her. So then we go for her friends, but they will all give us the
cold shoulder because nobody likes to be second choice. Well, what if no one goe
s for the blonde?
We don't get in each other's way, and we don't insult the other girls.
That's the only way we win.
(Laughs)
Adam Smith said the best result comes from everyone in the group doing what's be
st for himself, right? That's what he said, right?
Others : Right.
Nash : Incomplete.
Incomplete, okay?
Because the best result will come...from everyone in the group doing what's best
for himself...and the group.
Hansen : Nash, if this is some way for you to get the blonde on your own, you ca
n go to hell.
Nash: Governing dynamics gentlemen. Governing dynamics. Adam Smith...was wrong.
Nash leaves the bar.
Comment
I have commented several times on Lost Legacy on this scenario from the film, Be
autiful Mind, and the above words written by Hollywood script writers, whose aut
hority for attributing ideas to Adam Smith is an unknown variable, though it is
unlikely to be accurate if influenced by the existing consensus of US academe wi
th its, frankly, appalling record of misunderstanding, misattribution, and mista
ken presentation in many matters relating to the philosophy and political econom
y of Adam Smith.
I have no objections whatsoever if the above scenario is presented as a strategi
c Prisoner s Dilemma problem using a casual dating game as its subject, which, pla
usibly, is replicated in bars and clubs across the land. My objection is to the
imagined scenario being associated with Adam Smith s assertions about individual s
elf-interest and group behaviour.
The lesson of the Prisoner s Dilemma, either in its original form of a red-black [NB
. The convention later became a red-blue choice] 100-round game, or as the well-
known choices of confessing or not confessing offered separately to two prisoner s
suspected of a major crime, is that acting for what is best for self (confess t
o go free as long as the other prisoner does not confess) or acting for what is
best for both of them (both of them not confessing), is that always acting for s
elf, or always playing red, leads to long jail sentences or high negative scores
, whereas doing what is best for both of them (both don t confess; both play black
), as long as they both choose leads to short sentences and high positive scores
.
This was precisely what Adam Smith recommended through the venerable and ancient
propensity to truck, barter, and exchange , or bargaining: give that which I want, a
nd you shall have this which you want .
To settle a bargain, the players should consider that which is best for both of
them; competing in a bargain to get the best deal for self, generally means that
they don t get a deal; they deadlock, fail to agree, and go their separate ways i
n disappointment.
In the bar scene, all the boys have the same choice; pick separate targets and go
for their favoured girl. (Unsaid, of course, the girls had the same choice of pi
cking one boy; the male script writers typicaly took a chauvinistic view of the
scenario.) As everybody is a stranger, it doesn t really matter which you pick; yo
u re not making a life-time choice!
The real lesson of Prisoner Dilemma games is quite interesting (I have used them
thousands of times in Business School negotiating courses since the 1970s) is t
hat in the overwhelming majority of cases (92 per cent, when I used to keep scor
es for analysis) the outcomes were sub-optimal, that is negative red-blue scores
, translating in Prisoner s Dilemma games to maximum long jail sentences. Only 8 p
er cent of pairs scored maximum blue points (48 each).
Other researchers (John Carlyle, for instance) reported slightly better results
of 87 per cent and 17 per cent respectively, but while I can be sure that my pre
-game briefings were the same each time, and no hints were given by me, it may b
e that John s pre-briefing of the game was not devoid of hints , which would account
for the slightly different outcomes.
In short, Adam Smith was correct. People who act without addressing the self-int
erests of the other party do much worse than those who do (See WN I.iii.2: p 26-
7).
It may be that John Nash understood the better outcome of the co-operative choic
e as well as Adam Smith did - people bargaining are not competitors; they are co
-operators; they do best for themselves by serving the interests of the other gu
y or gal too.
Bargaining exchanges that conclude successfully are co-operative outcomes; both
do best by serving each other s interests consistent with the best available outco
me for themselves.
This propensity among humankind was of early vintage in the history and pre-hist
ory of humanity (see my Pre-History of Bargaining: a multi-disciplinary treatmen
t, Part I , downloadable from Lost Legacy s Home Page). It s in chapter 2 of Wealth Of
Nations. The 'Beautiful Mind' scriptwriters are wrong about Adam Smith (John Na
sh may well have been innocent).
Incidentally, if only I had read Wealth Of Nations before I was 20:
when I was a teenager going to weekly dances (jiving, etc.,) I had a friend who
demonstrated his dating technique, which was to dance with girls who were wallflo
wers , rather than popular girls. He claimed he always got a certain date that way, wh
ile most of us ended up walking home alone
Congratulations to Hwee Ling for writing a most interesting Blog for students.
Labels: Bargaining, John Nash, self-interest, Selfishness
POSTED BY GAVIN KENNEDY AT 10:22 AM
11 COMMENTS:
michael webster said...
Keith Murnighan has great article:
Speaking the Same Language: The Cooperative Effects of Labeling in the Prisoners
' Dilemma
on how labeling the choices gives hints to the individuals about what the group
might be up to in the standard two person dilemma game.
Very interesting indeed. It is not online, but he will email to you.
http://www.kellogg.northwestern.edu/faculty/murnighan/htm/speakingthesame.htm
3:29 PM
tom said...
Interestingly there is no need for Nash to bargain in that scene once he figures
out that going for the blond is sub optimal he has his pick of any of the other
s. If he convinces everyone else of his correctness he reduces his chances at th
e second best from the group. The only reason for him to advance this notion is,
as was noted by one of the other characters, for him to be the only one talking
to the blond.
3:44 PM
Gavin Kennedy said...
Thanks Michael
I posted the url but it didn't download. I shall try again later.
The point about labelling - to give information - is not much diffeent fromsetti
ng the task to pairs without any inromation - other than the rules - and then de
briefing the score from their plays.
With learning comes improvements in scores. Hints step towards learning.
6:00 PM
Gavin Kennedy said...
Tom
Leaving the bar was a scene closer I suspect and its more economical than watchi
ng it play out.
Aiming for the other girls is more or less what my friend Tony did.
6:02 PM
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Jedan said...
I Am reading the comments and have to disagree. Goal was not blonde but to get l
aid. In making a choice for win opposed to get the blonde is only considered a w
in Nash lays out a way for the complete group to get what they want and at the s
ame time increasing their odds for doing so.
Blonde is a catalyst for initiation of the needs yet fulfilling the need in not
the blonde herself but getting laid.
Whole group wins only in case of focusing on end result rather on thchoice (path
if you'd like) in acieveing it.
That's my two cents there. Adam Smith was correct in Darwin's behavioralistic ap
proach, John Nash in civilzed world for non-alphas ;-)
There, that's my two cents.
8:41 AM
terrywilcox said...
I am using the human brain reward system as the judgement method as this is the
highest form of reward we get. Neuro-science has shown us that everything (even
sex & wealth) is related to this 'feel-good' factor of the reward system. We now
know that we get two types of reward - one for personal achievements and a diff
erent type for groups (Dopamine & Oxytocin). If we do a task and get a personal
induced reward for the brain, this is not as positive as a group reward. However
, as we can get both rewards if we do something for the group and ourselves - th
en John Nash was correct.
1:10 PM
Umesh Bawa said...
ADAM SMITH's theory work at individual level, whereas, NASH's theory work at bot
h individual and in group.. So i don't find anything wrong in both discoveries..
..
5:11 PM
Unleash Ideas said...
Interesting analogy and cleared many of the doubts I had as well. I was over whe
lmed by the contrasting theory brought in by Nash after watching the movie "Beau
tiful Mind". I think the explaination you have given are very logical and fact b
ased. Tahnks..

http://adamsmithslostlegacy.blogspot.com/2009/02/hollywood-john-nash-was-wrong.h
tml