In 1954, Richard Braithwaite chose as the topic of his inaugural lecture at Cambridge The Theory of Games as a Tool for the Moral Philosopher. Braithwaite argued that by using the recently developed mathematical theory of games, philosophers could resolve certain problems in moral philosophy previously considered unsolvable. Formal game theory is a product of the twentieth century. John von Neumann and Oskar Morgenstern established game theory as an important new branch of social science with the publication of their 1944 treatise Theory of Games and Economic Behavior. However, the basic idea that motivates game theory has much older intellectual roots in the work of philosophers such as Hobbes (1651) and Hume (1740). This basic idea can be expressed in the following way: How agents behave in a given social interaction depends crucially upon their reciprocal expectations. To give an example adapted from Braithwaite’s lecture, if you and I wish to have a telephone conversation, then exactly one of us must call. I should wait for your call precisely when I expect you to call, which you should do when you expect me to wait. Even in an example this simple, issues of fairness can come into play. We both want to coordinate our behavior and have our telephone chat. But each of us may prefer to call, so as to avoid having the other pay for the call. Braithwaite used game theory to model this example, and to propose a method for assigning the roles of caller and receiver equitably. He conjectured that this method could be applied in general to problems of distributive justice.

Fifty years ago, two Princeton professors established game theory as an important new branch of applied mathematics. Game theory has become a celebrated discipline in its own right, and it now plays a prestigious role in many disciplines, including ethics, due in particular to the neo-Hobbesian thinking of David Gauthier and others. Now it is perched at the edge of business ethics. I believe that it is dangerous and demeaning. It makes us look the wrong way at business, reinforcing a destructive obsession with measurable outcomes and a false sense of competition. It falsely characterizes or insidiously advocates a style of human behavior that is utterly unacceptable. To put the matter quite crudely, a person who actually practiced the form of “rationality” advocated by game theory would be something of a monster.

We should not ask for more precision than a subject is capable of giving us. — Aristotle, (384–322 B.C.E.) Nicomachean Ethics Bk. 1

Not that you won or lost—but how you played the game. — Grantland Rice (1880–1954) “Alumnus Football”

As the author of one book on the elements of game theory and another on the possible applications to ethics (Binmore [3,4,5]), I suppose it is natural that I should be asked to reply to Robert Solomon’s (13) claim that “game theory has been a disaster in ethics, and now it threatens to become devastating to business ethics as well.” However, I find myself somewhat at a loss as to know what to say, since the game theory he attacks is not practiced by any game theorists with whom I am familiar. At first, I thought this was because my friends and I were deemed to fall into the class of “refined” game theorists to whom Solomon is willing to grant grudging acceptance, but it turns out that their refinement lies in appealing to principles that contradict the essence of the game theoretic enterprise. My guess is therefore that the plain old “vulgar” game theory which he attacks is actually intended to be the same game theory for which John Harsanyi, John Nash, and Reinhard Selten were recently awarded the Nobel Prize. My strategy in replying will therefore have to be the same as those innocent men who are asked why they beat their wives. Instead of explaining why wife beating is a good idea, I shall have to insist that I don’t beat my wife at all.

Solomon’s article and Binmore’s response exemplify a standard exchange between the game theorist and those critical of applying game theory to ethics. The critic of game theory lists a number of problems with game theory and the game theorist responds by arguing that the critic’s objections are based on a misrepresentation of the theory. Binmore claims that the game theorist is in the position of the innocent man who, when asked why he beats his wife, must explain that he doesn’t beat his wife at all (Binmore, 2). However, even if we agree that the denial is true, we might still like to know why, if you are not beating your wife, do others consistently accuse you of doing so? Or, to get away from this rather sexist metaphor, why are critics of game theory like Solomon (according to game theorists) consistently getting game theory wrong?

While, as I argue in the first section, critics of game theory such as Solomon may misrepresent game theory, this misrepresentation is not entirely their own fault. The way in which game theory is traditionally presented is misleading. For example, students are usually first introduced to game theory through the prisoner’s dilemma. It is compelling drama, but lousy PR for the use of ethics in game theory. (You want to know what to do? Let’s see how two thieves reason.) However, while Binmore is right to argue that game theory neither assumes nor entails the theory of human nature that Solomon finds objectionable, Solomon is also right to argue that game theory is promulgated and applied with what appear to be a robust set of assumptions about human motivation. I argue in the second section, however, that in fact neither these applications of game theory, nor game theory itself, is committed to a particular theory of human motivation. Thus, while game theory is not able to provide a complete ethical theory (assuming that a theory of human motivation is essential to such a theory), it is not contrary to ethics. In the final section I note that Aristotle, rather than being the alternative to using game theory in business ethics, as Solomon suggests, actually points the way to an ethical theory that can combine a discussion of both game theory and “those nagging and controversial questions about what it is that people do and ought to care about” (Solomon, 7).

In recent years, a number of authors have used game-theoretic reasoning to explain why purely self-interested agents would ever conform their economic activities with the requirements of justice, when by doing so they forego opportunities to reap unilateral net gains by exploiting others. In this paper, I argue that Hume’s justification of honest economic exchanges between self-interested agents in the Treatise foreshadows this contemporary literature. Hume analyzes the problem of explaining justice in self-interested economic exchange as a problem of agents coordinating on a pattern of reciprocal cooperation, as opposed to some other behavioral pattern such as reciprocal exploitation, in exchanges repeated over time. Hume’s arguments anticipate informally the contemporary interpretation of just economic practices as forming part of an equilibrium of a repeated game. I close the paper by arguing that Hume does not provide a satisfactory explanation of how the mutual expectations that support justice in economic exchange arise in a community of self-interested agents. The problem Hume leaves unsolved is one of equilibrium selection, that is: Why do agents follow an equilibrium corresponding to just economic exchanges rather than some other equilibrium corresponding to unjust exchanges? I also argue that contemporary game theory still lacks a satisfactory theory of equilibrium selection, but that such a theory would lead us closer to a satisfactory Humean reconciliation of justice and self-interest in economic exchange.

Business negotiations often involve cooperative arrangements. Sometimes one party will renege on a cooperative enterprise for short-term opportunistic gain. There is a common assumption that such behavior necessarily leads to a spiral of mutual antagonism. We use some of the philosophical literature to frame general research questions and identify relevant variables in dealing with defection. We then describe an experimental approach for examining the possibility of reconciliation and discuss the results of one such experiment where participants were the victims of defection. In contrast to the initial assumptions we found that many participants were willing to reconcile, and that penance conditions, when demanded, were less stringent than expected. We suggest that these findings warrant further study and have implications for business dealings.

Very little can be learnt about [retribution] from Aristotle’s Politics or his three ethics. In modern ethico-political concepts of justice (in Hobbes, Rousseau and Hegel), the problem of retribution appears in conjunction with other problems and is not of central importance.—Agnes Heller

Concern for one’s “reputation” has been introduced in recent game theory enabling theorists to demonstrate the rationality of cooperative behavior in certain contexts. And these impressive results have been generalized to a variety of situations studied by students of business and business ethicists. But it is not clear that the notion of reputation employed has much explanatory power once one sees what is meant. I also suggest that there may be some larger lessons about the notion of rationality used by decision theorists.

The kind of commitment to moral rules that characterizes effective interaction between persons in among others places, manufacturing and commercial settings is characteristically treated by economists and game theorists as a public good, the securing of which requires the expenditure of scarce resources on surveillance and enforcement mechanisms. Alternatively put, the view is that, characteristically, rational persons cannot voluntarily guide their choices by rules, but can only be goaded into acting in accordance with such rules by the fear of social and formal sanctions. On this way of thinking, rational individuals are condemned to having to settle for the “second-best” results that are thereby implied. This conclusion rests not only on an appeal to a consequentialist perspective, but also a separability principle. Against this, it is argued that consequentialism itself offers a basis for the rejection of the separability principle, and a defense of the thesis that, for a wide range of realistic cases, being disposed to voluntarily guide one’s choice by rules (on the condition that others can be expected to do so as well) is a necessary condition of engaging in rational interaction.

Most people do not trust most other people, unmonitored, to honor obligations completely. Because of this they use substantial amounts of resources to specify the details of agreements, and to police them. Use of these resources … could be greatly reduced, if transacting parties would agree to honor the spirit of their agreement and simply shake hands. The resource saving to the two parties combined, from substituting this mode of “enforcing” agreements to those currently used, is clear. Why, then, does not this more efficient mode of transacting drive out the more costly methods through the normal competitive process? … The underlying rationale for this … is that it is privately profitable to engage in some degree of “cheating” on agreements, and to use resources to disguise this fact. — M. W. Reder, “The Place of Ethics in the Theory of Production”

Norms of discrimination against women and blacks, norms of revenge still alive in some Mediterranean countries, and norms that everybody dislikes and tries to circumvent, such as the invisible norms of reciprocity that hold among the Iks studied by Turnbull, are all examples of unpopular and inefficient norms that often persist in spite of their being disliked as well as being obviously inefficient from a social or economic viewpoint. The world of business is not immune to this problem. In all those countries in which corruption is endemic, bribing public officials to get lucrative contracts is the norm, but it is often true that such a norm is disliked by many, and that it may lead to highly inefficient social outcomes (Bicchieri and Rovelli 1995).

From a functionalist viewpoint such norms are anomalous, since they do not seem to fulfill any beneficial role for society at large or even for the social groups involved in sustaining the norm. In many cases it would be possible to gain in efficiency by eliminating, say, norms of racial discrimination, in that it would be possible to increase the well-being of a racial minority without harming the rest of society. To social scientists who equate persistence with efficiency, the permanence of inefficient norms thus presents an anomaly. They rest their case on two claims: when a norm is inefficient, sooner or later this fact will become evident. And evidence of inefficiency will induce quick changes in the individual choices that sustain the norm. That is, no opportunity for social improvement remains unexploited for long. Unfortunately, all too often this is not the case, and this is not because people mistakenly believe inefficient norms to be good or efficient.