How can you avoid pitfalls when using game theory in policy making?

1 Know your assumptions

One of the first steps in using game theory is to specify the assumptions of the model, such as the players, the actions, the payoffs, and the information. These assumptions should be based on empirical evidence, theoretical reasoning, or expert judgment, and they should be clearly stated and justified. However, some assumptions may be unrealistic, incomplete, or inconsistent, and they may affect the validity and relevance of the results. Therefore, you should always check your assumptions for plausibility, robustness, and sensitivity, and be ready to revise them if necessary.

2 Choose your solution concept

Another important step in using game theory is to choose a solution concept, which is a criterion or rule for selecting the best or most likely outcome of the game. There are many different solution concepts, such as dominant strategies, Nash equilibrium, subgame perfect equilibrium, or Bayesian equilibrium, and each one has its own advantages and disadvantages. Depending on the context and the purpose of the analysis, some solution concepts may be more appropriate or realistic than others. Therefore, you should always explain and justify your choice of solution concept, and compare it with other possible alternatives.

3 Consider multiple equilibria

One of the challenges of using game theory is that some games may have multiple equilibria, which means that there are more than one possible outcomes that satisfy the solution concept. For example, in a coordination game, where players have to choose the same action to get the highest payoff, there may be two or more actions that can be coordinated on. In such cases, it may be hard to predict which equilibrium will be played, or how to select or influence the equilibrium. Therefore, you should always consider the possibility of multiple equilibria, and use additional criteria or mechanisms to refine or select among them.

4 Incorporate dynamics and learning

Another challenge of using game theory is that some games may be dynamic, which means that they are played over time, and the players can observe and react to each other's actions. For example, in a repeated game, where players play the same game several times, or in a sequential game, where players move one after another, the players may learn from their experience and adjust their strategies accordingly. In such cases, it may be necessary to incorporate dynamics and learning into the model, and use more sophisticated solution concepts, such as trigger strategies, folk theorems, or reputation effects.

5 Communicate your results

The final step in using game theory is to communicate your results to the relevant audience, such as policy makers, stakeholders, or the public. This involves explaining the main findings, implications, and recommendations of your analysis, as well as the limitations and uncertainties. You should also use clear and accessible language, diagrams, and examples to illustrate your points, and avoid jargon and technical details that may confuse or alienate your audience. Moreover, you should be honest and transparent about your assumptions, methods, and sources, and acknowledge any potential biases or conflicts of interest.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?