A Nash equilibrium is frequently not Pareto efficient; if everyone changed their strategy at once, everyone could do better.
If everyone does better at a different Nash equilibrium, then that just shows that being a NE is necessary, but not sufficient for mutual rationality.
If everyone does better at a joint strategy that is not an NE (PD, for example), then one of the players is not playing rationally—he could do better with another strategy, assuming the other player stands pat.
… people often don’t behave the way game theory says they should, and assuming that they will is often foolish.
Assuming that they won’t be rational can often be foolish too.
Rational-agent game theory is not claimed to have descriptive validity; its validity is prescriptive or normative. Or, to be more precise, it provides normatively valid advice to you, under the assumption that it is descriptively valid for everyone else.
And yes, I do appreciate that this is a very weird kind of validity for a body of theory to claim for itself.
If everyone does better at a different Nash equilibrium, then that just shows that being a NE is necessary, but not sufficient for mutual rationality.
If everyone does better at a joint strategy that is not an NE (PD, for example), then one of the players is not playing rationally—he could do better with another strategy, assuming the other player stands pat.
Assuming that they won’t be rational can often be foolish too.
Rational-agent game theory is not claimed to have descriptive validity; its validity is prescriptive or normative. Or, to be more precise, it provides normatively valid advice to you, under the assumption that it is descriptively valid for everyone else. And yes, I do appreciate that this is a very weird kind of validity for a body of theory to claim for itself.