Predictive value and the usefulness of game theoretic models

Abstract

Green [Int. J. Forecasting (2002)] reports that in certain settings predictions made by game theorists can be outperformed by the outcome of a short role playing exercise. Goodwin [Int. J. Forecasting (2002)] argues that this does not imply that game theoretic analysis cannot be useful. The current paper discusses two types of observations that support this assertion. First, there are many important settings in which game theoretic models have high forecasting power. Two examples: the aggregate outcome of entry job markets, and the outcome of repeated interactions are summarized here. The second observation concerns the possibility of objectively forecasting the predictive value of specific models (and methods) on particular domains. To increase our understanding of the value of role playing, we suggest that future research focus on estimating the predictive value of this method using a random selection of problems from a well defined set.