Economic Fables by Ariel Rubinstein

Ariel Rubinstein is a well-known game-theorist. Economic Fables is available for free online but I instead chose to buy it. I did that because I like having it in print to put it on by bookshelf and see it lying there every day reminding of its ideas. This book is totally not what I expected. I expected a book with conventional views on how economics, from a game theory point of view, are used in everyday life; with a conclusion that game-theory teaches us useful lessons applicable in our daily routine. You know, like the standard non-textbook economics books we are used to. The “standard” characteristics are objectiveness, impersonal writing, like text-books but with a pinch of salt. Economic Fables is different. It is very personal and in a way controversial. And the conclusion is that game theory is not useful from a practical point of view.

One of the main aims of Rubinstein is to convey to the reader that what economists are really doing is writing fables, short stories that try to resemble reality, but in mathematical language. He gives two purposes for studying economics: the first one is that economic models predict human behaviour in the real world based on data analysis; the second one is that economic models sharpen perception, “an intellectual exercise”, which makes those who write them (the economists) suitable for specific high-profile decision making. Rubinstein goes on to suggest a third purpose: “economic models are essentially not different from a model in logic”, “we are satisfied even if the model is merely interesting”, and does not have any predictive value.

When the author describes game theory, less than half of the book, it feels almost like reading a text-book but with much more words which are inevitable when you translate from maths to English. If you have studied game theory before you can easily skip those parts. He goes through the “rational man” assumption of economics in the first chapter. There are many examples from behavioural economics, e.g. the Kahneman-Tversky experiments that challenge the standard homo-economicus assumptions, with results of online surveys published on the books website (accessible for free).

In the book you can find the author’s personal memories from young age in Israel, such as how come he became a game-theorist, brief discussion of his relationship with his parents, and later in Princeton where he met John Nash in person. There is also a part where he talks about the interdisciplinary study of economics and language, something which I had never heard before.

Rubinstein also included his thoughts on the Middle East problem and he chose to end the book with a chapter on economic policy. His thoughts are not mainstream at all. He chooses to emphasize market failures and very successfully parallels the economy as a school game where the strong boys bully the weak ones and so set the rules of the game and can also adjust them however they see fit. The bully kid in economy are the rich and the powerful who adjust the laws whenever they feel threatened from below and therefore the market mechanism doesn’t really work to deliver a fair outcome. After he describes a dismal world in the future where everything is privatised, Rubinstein suggests to young economists that if they want to be ahead of their time they should research nationalisation instead of privatisation.

Economic Fables is written by an economist who is nothing at all like the ones you see on TV. There are no bold statements and throughout the whole book you can sense that the author is a humble person, who clearly understands the limits of his knowledge. Excellent read if you want to read something different.