THE NEW GAME THEORY

Abstract

Game theory and the legal system it models are deeply indebted to the idea of efficiency and efficient outcomes. A great many scholars use game theory to rationalize approaches used on efficiency not only to commercial transactions, but also the legal system writ large, including the tort law system and the criminal justice system.

Efficiency and efficient outcomes have a storied history dating back to Vilfredo Pareto, Ronald Coase, and even before that to Adam Smith. But the person that truly popularized the idea of efficiency was John Nash, who won the Nobel Prize for his work on noncooperative game theoretic outcomes. Nash invented the idea of a Nash equilibrium in game theory, which counsels that in game theory dilemmas the individual players should act to maximize their own self-interest and in which any solution where players can “deviate” to improve their individual outcomes means they will.

A great many scholars have thrown “stones” at Nash, and the idea of efficiency, both inside and outside of game theory. Cooperation scholars, Critical Race Theorists, scholars of law and political economy, and some scholars within the law and economics movement have criticized efficiency and efficient outcomes. Indeed, even some renowned computer scientists and political scientists seem to take issue with aspects of Nash, and some suggest that players should play cooperatively, and not in competition.

This Article builds on their work and suggests an alternative framework to Nash. Instead of designing structures in which individuals act in their self interest alone, which can lead to a tragedy of the commons and overuse of resources, this Article argues that game theory designers should design structures in which there is no incentive to deviate or cheat, and that barring that, players should form pacts or accords with other players to pursue a “second best” equilibrium, which in the end is better in terms of utility both for the individual and for the collective than if they pursue their pure self interest alone.

These solutions cohere with laboratory experiments performed in real life about how real humans behave, as well as mathematical models predicting pure cooperation through departures from Nash equilibriums. They are enforceable using mechanisms such as reputation and empathy or by the community or elected community members, though they are also compatible with central institutions. An important caveat is that these game theory solutions only work in the right environment and in the long run.

When such conditions arise, the new game theory thus suggests a toehold into global problems ranging from harsh prison conditions to prevention of corporate wrongdoing and ultimately provides new answers to issues such as climate change and wealth inequality, where pursuing naked self interest can lead to stratification of resources and resource exhaustion.