Synopsis of Key Lessons from Cooperative Economics

18 min readOct 16, 2018

This article kicks off a series of articles based on the book “A Cooperative Species, Human Reciprocity and Its Evolution” by Bowles & Gintis, 2011.

This book is about many things, but this series of articles focuses on (a) the lessons it has regarding cooperative games, (b) lessons it has regarding how people behave in small teamwork settings, and (c) what it can teach us about decentralized cooperation.

The objective is to provide a steelmanning of the book’s arguments.

Why do I care about this topic?

This ambitious book covers many areas including policy, society, economics, game theory, sociology, neurobiology, evolution, and psychology, just to name a few. I discovered this book after studying algorithmic game theory (AGT). AGT introduced me to the notion of correlated equilibrium — which turns out to be a key concept in cooperative economics. I started out mostly interested in what the book had to say about algorithmic game theory (AGT), but ended up becoming equally fascinated by what it has to say about the human aspects of teamplay.

In other words, I came for the AGT but stayed for the sociology.

Cooperative games

Cooperative game theory is a key idea of the book. Cooperative games allow the use of binding agreement. What makes it possible to bind the agreements is some mechanism outside the game that enforces the agreement and makes them have consequence, such as being enforced by a third party.

Alternatively the group may abide by a code of conduct that is respected by each participant. This could be achieved by each group member following their own “conscience.” Where that conscience comes from is a key theme of the book, but is not a focus of my review. Another way to instill rules and best practices is by rigorous practice, such as the drills used by sports teams and armed forces. This can be viewed as a type of evolutionary game, which is another key idea of the book.

Enforcement may be an external centralized entity, such as a police force. Enforcement can also be implemented in a decentralized manner. This is a key theme of the book. Group members take it on themselves to enforce the group norm. How this is done in an economical way is another key theme of the book.

To be effective, players in a cooperative game must either acknowledge their “conscience” or respect the enforcer. The mechanism used to coordinate the players is known as the choreographer, also called a correlating device, or correlating signal.

Though “choreographer” sounds better, and “correlating signal” seems more natural in practical settings, I’ll stick with “correlating device,” the term used in game theory.

Correlated Equilibrium

Equilibrium concepts are used in game theory for understanding group behavior. For example, we may want players to converge to a set of states that are deemed “good”, and tend to remain in that set of good states.

Coordination games give us a relatable example. Consider the walking down a path scenario:

Two people who may or may not know each other are walking towards each other down the middle of a narrow path.
The path provides enough room for one person to walk comfortably, and just enough room for two people to pass without one having to step off of the path.
In the typical scenario, one walker will move to one side (while continuing walking in the same direction), and then the other walker will move to the other side,
each one walking in the same direction as they were before, until they pass, at which time they can resume walking down the middle of the path if they so desire.
There are no markings on the path.
There are no other people on the path.
There are no signs suggesting best practices for courteous path usage.

Seems simple enough.

In the walking path example, a good equilibrium would be for one walker to move to their (own) left, and the other walker move to their (own) left, and thereafter remain on their respective sides until they walk past each other.

A less good, albeit possibly comical progression of states, might be where both walkers simultaneously move to their left, then both walkers simultaneously move to their right, repeating this until the impasse is resolved (say) by facial expression, hand gesture, body language, or verbal outcry.

There are many types of economic equilibrium. The key equilibrium concept in cooperative games is the correlated equilibrium.

It is possible for players to learn from each other’s historical plays and end up converging to a correlated equilibrium. In the walking path example, each walker can see what the other walker is doing, as well as possibly their facial expression, hand gestures or other body language, as well as the direction of their gaze, and response to their surroundings. In a short number of plays most players in this game will converge to a mutually compatible equilibrium for the remainder of the encounter.

Mechanisms for coordinating behavior

The correlating device is a key component of cooperative games. It allows groups to achieve an equilibrium state that coordinates their behavior in a way that is to the mutual benefit of everyone playing the game.

Examples of correlating device in cooperative games :

Public signal. A hiking group agrees to meet unless it rains. Subsequently members may not be able to communicate with any other member, but can decide for themselves whether the notion of “to rain” has been satisfied. The group is able to coordinate even though they are unable to communicate after the initial agreement was achieved.
Traffic signal. This is also an external public signal that all players can see, and is also another example of a contractual agreement to behave in a preordained manner as stipulated by the registration process required to obtain a driver license.
Metronome. Musicians use this to synchronize their playing. It can be utilized in a variety of ways.
Contract. A contract is an enforceable agreement to cooperate, although not necessarily easy to enforce.

The signal need not be completely public, it can be partially public, as will be illustrated below in an example scenario.

Non-cooperative games

In cooperative games it is possible to make a binding agreement. In non-cooperative games it is not possible to cooperate through agreements or enforcement. Cooperation is possible but is achieved only by players playing rational strategies based on self-interest, only. Much of the book is devoted to comparing and contrasting these two models.

The book devotes a great deal of text demonstrating how in real life, cooperative game theory does a better job at predicting how human players will behave in many of the typical games that are studied in game theory. Several of these games have problematic scenarios, apparent paradoxes, or types of information unraveling where (assuming that everyone is a self-regarding strategic player) leads to a worse (and sometimes even the worst) outcome for all players. These are known as game theory dilemmas.

Before presenting these dilemmas, let’s return to the walking path scenario.

There are two actions: walk on the left, or walk on the right. So far, so good — this is easy to capture with non-cooperative game theory with the standard payoff matrix.

If a walker A continued to walk down the middle even after walker B has moved to one side, in the real world this could be construed by B as A being not fully aware of the situation. Many key results in classical economics assume that every player is omniscient — all information in the game is available to all agents, and each agent is fully aware of everything that is going on in the game. We now already have a very simple real world scenario that contradicts one of the basic assumptions commonly used in classical economics models.

We could fix this by having B temporarily leave the game, say, by stepping off the path until A passes. This is equivalent to adding an additional action — step aside, moving off the path until the other walker passes. This changes the game from having two actions to a game having three actions.

Setting that aside for now, let’s suppose that B’s strategy might include some type of signaling to get the attention of player A. Of course, that is an additional action, one not represented in our original model, so we need to reformulate the game again.

Setting that aside for the moment, suppose that A does not respond. This could be excused as A just not playing the game well, i.e., not being a strategic player — for example, player A might be a small child, or, a (nonhuman) animal, or a person who is not feeling well and is not behaving normally.

Many of the key results in classical economics rely upon every player being a perfectly rational and strategic player known as Homo Economicus, or sometimes simply The Econ. This assumption makes the Econ wholly unusable for this simple scenario.

Classical economists seem to be insisting that the ideal unit of population in a game is the Econ, when it could instead be devoting itself to figuring out how to better use the actual unit of human population — namely (wait for it …) the Person. Behavioral economics delves deeply into this topic, essentially piling up the evidence that Econ ≠ Person. The book describes several of those findings.

The seemingly simple walking path example turns out to be deceptively challenging. How can cooperative game theory can come to the rescue? Is there a means of providing for a separate enforcer or hinting signal? In our scenario, the path is out in the middle of a secluded area where there is no police force. There are only two people on the path. There is no hinting signal to suggest to A to move to one side of the path. So, where is our correlating device?

The book devotes much time describing how cooperative game theory accounts for this, in several other more challenging scenarios. One way might be by allowing player B to have a model of what comprises “normal” behavior. Player B’s model is private information, which at this point, is known only to B. However, B could convey some of this private information to player A by acting “indignant” towards A. Indignance is a social emotion, but the expression of indignance using facial expression, speech, or body language is a social signal, one that B expects is understood by other members of civic-minded norm-abiding members of society. In such a society, player A might take the hint, and walk on the other side of the path.

But what if A did the something else instead? Say, if A switched over to the same side of the path as B, and continued to match B’s side of the path even after B switched to the other side several times. Player A’s behavior could be construed by B as aggressive behavior. In the real world this could trigger a whole host of other possible responses by B, such as to fight, to flee, or to stop and assess.

The walking path scenario is one of the simplest scenario involving coordination and cooperation between two players. Handling this seemingly simple scenario becomes increasingly difficult using a classical normal form game payoff matrix.

This scenario is more readily handled using an extensive form game, using prior knowledge, knowledge learned from experience, or a combination of both. The classical form game is in a certain sense a simpler model than the extensive normal form game. However the idea of Occam’s razor in science is to use a model that is a simple as possible to model the data, and no simpler.

This is another key theme of the book — that attempts by classical economics to force non-cooperative game theory to model human gameplay end up becoming so convoluted that the model is no longer the simpler one.

Social norm and social preference as correlating device

Handling players that are either irrational or nonstrategic would seem to require some understanding of what comprises typical behavior. Returning to the walking path scenario, if from what player B can gather in this situation, B believes that player A is capable of doing the right thing and is still not doing so, player A’s behavior could be construed by B as “rude”. Such “rude” behavior triggers a a social emotion called “indignance”. This indignance felt by B is a social emotion triggered by A’s failure to comply with a social norm held by B. B’s expectation is a social norm. The indignance response by B would trigger one or more strategies. B could decide to convey their indignance to A. Or, B could keep that information private.

A key theme of the book is that a social norm is readily modeled as a correlating device, a key component of cooperative game theory. If so, then social norms can be modeled using cooperative game theory. Social norms are an important organizing principle in groups of people; therefore, cooperative game theory is suitable for modeling group behavior.

Dilemmas

Much of the action in applying game theory in the real-world is in using non-cooperative game theory in scenarios involving large numbers of competing players. Though there are many examples of real-life scenarios involving a small number of players that map onto games used in game theory, it is fairly easy to imagine scenarios akin to the ones we imagined for the walking path scenario where non-cooperative game theory becomes unwieldy. Not only that but many apparent paradoxes arise where classical game theory is not just unwieldy but gives a worse outcome than what we would expect to be the case when played in real life by human players.

The volunteer’s dilemma is resolved by altruism.
The coordination game is resolved by agreement.
In the unscrupulous diner’s dilemma the strategy that is dictated by non-cooperative game theory makes everyone is worse off than they would have been if they collectively pursued another strategy.
Enforceable agreements are a typical solution to the prisoner’s dilemma in real world scenarios.
The Nash equilibrium strategy solution is a bad predictor of people’s behavior in a traveler’s dilemma. Most people do not use strategies based on pure self-regard, and moreover the strategies that they actually do use are optimal.
In many repeated games, Nash equilibrium strategies lead to outcomes known as “information unraveling”, which leads to various dilemmas.

Non-cooperative game theory is relatively less flexible for modeling smaller groups of human players, such as in social loafing scenarios. The book presents several other examples in addition to the ones given above.

Why this matters

Correlated equilibria are computationally less expensive to find than the more well-known and much celebrated Nash equilibrium that dominate non-cooperative game theory.

Finding Nash equilibria in general involves solving systems of nonlinear inequalities, which is computationally expensive. Finding correlated equilibria requires solving a linear programming problem, which is easy for computers.

Someone once said “If your laptop can’t find it then neither can the market”, which you could paraphrase, if your user’s smartphone cannot find it neither will they.

Calculating a correlated equilibrium only requires only a linear program (Papadimitriou and Roughgarden, 2008) which is straightforward for computers to solve. Calculating a Nash equilibrium involves solving systems of nonlinear inequalities, which is in general much more computationally demanding.

A typical example of a real-world problem that maps to calculating a Nash equilibrium is that of estimating where prices will settle to in an exchange economy.

Another reason why the concept of correlated equilibrium is more useful is because real life scenarios are typically correlated equilibrium and not Nash equilibrium. There is usually some level of communication available among the players in most games encountered in real life, whether we are aware of it or not.

Decentralized consensus and coordination

The book demonstrates many ways that cooperative games in human groups are decentralized using social norms and social emotions.

This is not to say that people do not also use non-cooperative strategies or evolutionary strategies. The book admits as much.

Along with cultural institutions such as codes of ethics and rule of law, social norms and social emotions play a primary role in guiding human groups to self-organize in ways that are mutually beneficial within the group, while also making the group more effective at competing with other groups. This is where the notion of “red in tooth and claw” comes into play, dispelling the myth that cooperative economics is all about playing nice. More on that in one of the later articles, which are linked to below.

Caveats

For the purpose of brevity and in order to provide an unbiased steel-manning of the author’s arguments, most explanations will kept terse with a minimum of elaboration.

I focus on conclusions instead of methodology. I leave it to others to validate the science.

The authors do seem to set up a strawman — sturdy as it is — in the form of classical economics. Not all classical economists disagree with criticisms of homo economicus, though to be sure, many still do.

The book also often equates classical economics with non-cooperative game theory, whereas many economists commonly use evolutionary game theory, bounded rationality, behavioral economics, and econometrics, among numerous other tools, some of which are flexible enough to to model the players’ subjective beliefs about what actions their opponents might take, possibly including correlation among the actions of subsets of opponents.

Politics

The book’s authors are avowed marxists.

For the record I am not a marxist.

In this series of articles that follow, I am trying my best to steel-man the arguments. However it would be naive for me to just state the previous sentence and hope that it will inoculate me from a misimpression of complicity in some nefarious political agenda.

The authors’ politics may put off many readers. However, I believe that key lessons of this book are useful without resorting to even marxism’s milder cousin, socialism. I explain why shortly.

But first, I feel compelled to state these qualifications up front. I read this book seeking actionable ideas that can be converted to working code to solve real-world problems out in the wild. I didn’t know about the authors’ political leanings until after I had read it the first time. However, some of the book’s themes are risky to write about because the book wends through a veritable minefield of value-laden terms, ideologies, and dogma.

There are some common memes that I believe to be mistaken:

Cooperation is anti-competition, therefore cooperation is anti-competitive.
— This is a fallacy. Cooperation actually improves competitiveness.
— This is addressed in the book, and in my review.
Cooperative economics implies socialism.
— This is addressed in the book, and in my review.
— Many counterexamples evidencing how cooperative economics was likely used by people to self-organize well before socialism emerged in any sense of the word.

There is one meme that does hold some credence : that the book is anti-capitalist.

The book criticizes capitalism openly and often. After all, it is proposing an alternative.

Quotes

And now, to lighten things up a bit, while reminding just how charged these topics are, here is a sample of some entertaining quotes on the matter.

The book’s authors do tend to criticize “classical economics”, and from what is readily available online it is also apparently true that the book’s authors sympathize with non-capitalist ideas. But they are not the only ones:

Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all. — John Maynard Keynes

Although some claim that Keynes did not utter these words, apparently he did, in the book “Christianity and Human Relations in Industry”, 1951.

One of the most damning criticisms of all is hypocrisy:

they used to say a rising tide lifted all boats. Now the rising tide just seems to lift the yachts. — British Labour MP Ed Miliband

Many may consider economic freedom to be a necessary part of this discussion, for example as measured by the Index of Economic Freedom by The Heritage Foundation and The Wall Street Journal, in which as of 2018 USA ranked 18th.

“Economic freedom” is a term used in policy debates and in the philosophy of economics. I consider it to be an objective in its own right that I found to be mostly if not entirely irrelevant to the book’s themes.

Economic freedom is another one of the trigger issues that either side of a polarized debate may use to demonstrate that their ideology is the better one. It is also one of the themes that I found to be absent in the book, and that I hope and intend to be completely absent from my take on it.

Clearly, marxism and communism are loathed by capitalists:

“Under capitalism, man exploits man. Under communism, it’s just the opposite” — John Kenneth Galbraith, quoting what he describes as an old Polish joke, in “A life in our times”
How do you tell a communist? Well, it’s someone who reads Marx and Lenin. And how do you tell an anti-Communist? It’s someone who understands Marx and Lenin” — Ronald Reagan [Source: BBC , 1987]
Communism doesn’t work because people like to own stuff. — Frank Zappa

There are those who equate socialism to communism, or believe that socialism inevitably leads to communism:

Socialism is the same as Communism, only better English. — George Bernard Shaw

This is where the slippery slope fallacy can be wielded by the savvy or possibly ignorant debater. By condoning cooperation, one can be construed as therefore also supporting socialism.

Socialism is sometimes used interchangeably with communism even though the two philosophies have stark differences. Most notably, communism is a political system, whereas socialism is primarily an economic system.

There is little connection between economic performance and welfare expenditure. On some lists of “which are the most socialist countries” you can find six Scandinavian countries in the top ten. These same six countries also rate highly in economic terms and general levels of happiness. However, this is beside the point because the themes I am exploring are applicable outside of a socialist economic system.

In other words, cooperative ≠ socialist.

Socialism is an economic system where the ways of making a living are owned by a society as a whole. Whereas, the key lessons from the book can be leveraged in a completely apolitical system, such as an ecosystem of algorithmic agents.

Mechanisms from cooperative economics are already heavily utilized in market-based economies where the signaling is done by inanimate agents that are privately owned.

You are probably utilizing some kind of cooperative economics

The key tool of cooperative game theory and cooperative economics is the correlating device — a mechanism used widely in free markets. Using this device does not imply any measure of socialism.

A correlating device provides hints to people, which if followed will help people self-organize more effectively and avoid costly setbacks. Hints are suggestions that can be ignored to more or less degree depending on the situation. An example is a stop sign at a road intersection. Another is the markings on the roadway. That there is a correlating device does not mean that it will be enforced, much less with violent force. In reality, these hints are often ignored without any ramifications to the “offender”.

If you put a sign on your private property warning intruders to “beware of dog,” then you are using a correlating device.

A contract is another correlating device. The contract is a key tool of capitalism.

On the other hand, a spike barrier is not just a suggestion, being a mechanism that can enforce its “recommendation” without due process of law, and do so rather forcefully.

Consider the scenario when you board an airplane. There are very strict rules about when and how you can enter and exit the airplane. These are a contract that can and will be enforced forcibly. If you do not comply you can be forcibly removed from the aircraft and detained. Even though this may be a private enterprise there are strict rules that airlines have agreed to enforce. You will not be hung up in the public square in a literal sense, but video of the event may be disseminated instantly across global information networks for all to see and stored for all eternity in multiple data centers.

How do the arguments hold up?

There are numerous models that compete and overlap with this book’s model, such as evolutionary game theory (and evolutionary economics), behavioral economics, and myriad other flavors of economics. However, the authors do seem especially critical of classical economics.

The book argues fairly persuasively that cooperative economics is the better model in certain scenarios (actually, many). Could it displace classical economics more generally? So far as I can tell there is no grand unified model of economics. Even this book admits that classical economics has proven extremely successful in many practical situations. Moreover, this book admits that non-cooperative game theory is arguably a simpler model in many (though not all) practical scenarios. Likewise, evolutionary economics seems to be better suited in many other practical scenarios.

Cooperative, non-cooperative, and evolutionary theories each have strengths in certain regimes. The book presents many such scenarios. It even presents scenarios in which the player encounters a scenario where it needs to switch from one type of model to a different one mid-game — initially, the other players may seem like cooperating participants, only to suddenly snap into focus as self-regarding opponents.

Measured in dollars one could argue that classical economics dominates economics in the real world. Measured in number of interactions over the history of life as we know it then evolutionary economics could be argued as the most prevalent form. When measured in terms of what is most predictive of what is going to happen in a high-stakes game involving nuanced gameplay by savvy human players, then from what I’ve learned about it thus far, I would not waste any time and just start with cooperative game theory as the baseline model.

Non-cooperative models try to avoid the need for contracts, for example, by relying on reputation. At the end of the day though we still rely heavily on contracts in the real-world. Contracts are not going to disappear for the foreseeable future. Contracts are a correlating device, and so fall squarely within cooperative economics.

Paradoxes tend to be a sign of a model that has been stretched beyond its limits. Many of the apparent paradoxes in non-cooperative game theory evaporate when a correlating device is introduced.

Bottom line

The solution concepts presented in this book are computationally less expensive and more natural to apply in real life scenarios. For these reasons alone I recommend understanding them. That the book seemed to have lessons to teach about how people actually behave in group settings was a a bonus.