How does game theory inform economic engineering?


Abstract
How is it possible that models from game theory, which are typically highly idealised, can be harnessed for designing institutions through which we interact? I argue that game theory assumes that social interactions have a specific structure, which is uncovered with the help of directed graphs. The graphs make explicit how game theory encodes counterfactual information in natural collections of its models and can therefore be used to track how model-interventions change model-outcomes. For model-interventions to inform real-world design requires the truth of a causal hypothesis, namely that structural relations specified in a model approximate causal relations in the target interaction; or in other words, that the directed graph can be interpreted causally. In order to increase their confidence in this hypothesis, market designers complement their models with natural and laboratory experiments, and computational methods. Throughout the paper, the reform of a matching market for medical residents provides a case study for my proposed view, which hasn't been previously considered in the philosophy of science.
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References found in this work BETA

The Explanation Paradox.Julian Reiss - 2012 - Journal of Economic Methodology 19 (1):43-62.
Credible Worlds: The Status of Theoretical Models in Economics.Robert Sugden - 2000 - Journal of Economic Methodology 7 (1):1-31.
Prisoner's Dilemma Doesn't Explain Much.Robert Northcott & Anna Alexandrova - 2015 - In Martin Peterson (ed.), The Prisoner’s Dilemma. Classic philosophical arguments. Cambridge: Cambridge University Press. pp. 64-84.

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