Monday, January 12, 2009

Today's vocabulary term is: game theory

Speaking as someone who received a modicum of academic training as an economist, let me be the first person to concede that most of the professional writing by the current generation of economists is... well... bullshit. But a certain branch of the discipline has occupied my thoughts over the past few days for its apparently versatile applicability to the current crop of news stories, and that branch is called game theory. The idea behind game theory is that a system with a limited number of actors is less suited to graphical, "supply-and-demand" analyses than more densely populated ones, because the starting conditions faced by any one actor are influenced by whatever decisions the others have already made.

If, for example, Delta Air Lines slashes its fares, the subsequent pricing decisions made by Northwest Airlines will have to take this action into account, raising the prospect of a multi-stage sequence of strategic actions that don't fit neatly into slice-in-time pictures with intersecting curves revealing some magic point of equilibrium. Instead the various strategies that will be adopted by the various actors must be mapped out, one move at a time, to best inform our prediction of what another actor will do in response, and the "equilibrium" in such cases won't be a temporal answer, but rather a description of the considerations that will produce the most stable set of strategies, regardless of whether those strategies are in the actors' best interests. And the thing about that process is, we can apply it to the situation in Gaza; we can apply it to the wave of republican retirements in the Senate; we can apply it to Barack Obama's approach to engineering an economic recovery; we can apply it to the state of the Minnesota recount.

In Gaza, the Israelis face a set of strategic decisions that are such classic examples of game theory modeling that they may one day be incorporated into textbooks on the subject as a shining example: If the Israeli government pursues every last militant in Gaza, regardless of the collateral bloodshed that results, the sub-community of nations that has already registered its outrage will howl even louder, but the Israeli military will surely get its men (as it nearly always does). If, on the other hand, Israel ceases its operations in Gaza before it is satisfied that it has rooted out everyone with whom it finds disfavor, it runs the risk of leaving some of these people intact to commit future acts of violence against Israel but--and here's the rub--it gains nothing in the eyes of all those disapproving nations. They'll disapprove of the institution of the operations in the first place. They'll disapprove of the military imbalance. Most of them will disapprove of Israel, period. At the very least, it seems reasonable to presume that no government on earth is going to normalize its relations if the Israeli military stops, now.

What does game theory predict? It predicts that continuing the operation is a so-called "dominant strategy"--one by which the actor in question loses nothing but gains more than nothing, and which will therefore be adopted with near certainty, assuming that the actor in question is smart enough to have figured all of this out for itself. Moreover, this awareness also raises the prospect of an obvious course of action for the United States in the matter, too: Unless the "milk" of this particular military intrigue can be "soured" by Israel's principal benefactor, both militarily and diplomatically, the intrigue itself will be seen in the eyes of the persons who ordered it as an action without downside consequences--thus raising the prospect of even more unilateral bloodshed in the future.

Back at home, the country is in the grip of a wave of Republican senatorial resignations, the likes of which hasn't been seen since the early days of the Roosevelt Administration. Here the game theoretician looks not so much at the resignations themselves, but at the likely pattern of floor-votes presaged by the senate's current makeup. A filibuster-proof majority for the Democrats, as it happens, isn't nearly as important as most outsiders (including journalists) seem to think it is: The moderate Republicans can, and presumably will, vote against certain filibusters because they quietly support whatever legislation is being considered, then vote against the legislation itself if they feel they need to appease the RSCC and general party leadership. Conservative Democrats, meanwhile, can vote against the filibuster and against the bill, too, since their votes are more crucial in securing the first outcome than the second--thus fortifying their chances of reelection by conservative constituencies.

All of this means a high likelihood of significant legislation being passed by the next congress, and with it a game-theoretician's dream scenario for predicting large-scale strategic behavior on the part of the minority party. If a Republican senator opposes these legislative efforts hammer-and-tong, especially if they represent a purple state, their opposition is far more likely to redound to their own detriment than under normal (say, 1993-era) circumstances--since the country is in so big a mess already that few persuadable voters are likely to believe that any Democratic policy initiatives are likely to make matters any worse. If instead the Republican senator in question chooses to ascent to whatever is being proposed, he ends up either supporting something he disagrees with, facing a primary fight for his own reelection, or both. And since very few stupid people make it as far as the United States Senate (though in fairness it does occasionally happen), the writing on the wall for Republicans facing difficult reelection campaigns in purple states is that now might be a good time to announce retirement, as a dominant strategy permitting a far more flexible and centrist stance on any number of genuinely beneficial initiatives likely to come from thew new Administration, without actually lowering the chances of breezy reelection, because they were already zero.

President-elect Obama, of course, knows all of the same strategic maneuvers and their likely outcomes--not least because he hails most recently from the United States Senate himself. Accordingly, his own approach to engineering economic recovery has been surprisingly centrist, some might even say conservative (though presumably with a small "c" and not a capital one), since he knows full-well that any spending he submits to congress is far, far more likely to get bigger than it is to get smaller, by the time it comes back to him. By choosing the dominant strategy of shilling a relatively unambitious package of new initiatives, featuring relatively targeted and quotidian solutions to our nation's ills, he spares himself the bulk of an otherwise messy fight with the few remaining Mitch McConnell's of the world, while at the same time not really limiting the depth or breadth of the remedy.

Which only leaves the question of whether he have the votes of fifty-eight senators or fifty-nine, with the answer dependent, of course, on the eventual outcome of outgoing Senator Norm Coleman's faint-flickering gambit to have the result of Minnesota's closely contested recount overturned in civil court. The fact that courts almost never overturn certified election results apparently hasn't fazed Mr. Coleman all that much, as he seems as intent as ever to prove that any number of curiously one-sided incidents and judgment calls have robbed him of his election-night lead. In what has been dubbed by some people as a "kitchen sink" brief, Coleman is alleging that he has been unilaterally injured by double-counting, under-counting, wrongful inclusion of absentee ballots, wrongful exclusion of absentee ballots, and, to top it all off, a long litany of individual decisions by the canvassing board that seem in his mind curiously to have no offsetting counterparts on the Franken side of the ledger. Most mainstream columnists, to say nothing of a sizable plurality of Minnesotans, believe the challenge to be rubbish and want Coleman to give it up. But what would a game theoretician say?

A game theoretician would predict that Coleman would continue to pursue the court challenge for as long as he deems the benefit to outweigh the costs, and then (and only then) give it up. But there's a wrinkle here: Ordinarily, the costs of such an obviously whiny and unwarranted suit would be measured in decreased future electability, but in this case we're talking about a guy who lost one statewide race to a wrestler, won one against a dead man, and now appears to have lost to a comedian. The dominant strategy for Mr. Coleman, in other words, arises from the fact that he is completely and utterly washed up, regardless of whether he chooses now to bow-out gracefully or to fight to the ultimate, bitter end. He has nothing to lose. Accordingly, he's playing this precisely as someone who has nothing to lose--filing every possible objection and not bothering too much to justify the apparent contradictions that those various objections represent. To a game theoretician this is a perfectly rational course of action for him (provided the money holds out). If there is a 0.1% chance that he will still prevail, that's still 0.1% higher than his chances of ever holding statewide office in the future.

Oh and there's one other thing worth mentioning under the general heading of game theory as it applies to political realities at home and abroad: If dominant strategies continue to play as big and resurgent a role as they have over the past few weeks in shaping our national and international destiny, only good things can come of it. After all, the dominant strategy for a Republican Administration facing the need to choose a hurricane response wouldn't have been to let people drown, and a dominant strategy after September 11th would most assuredly NOT have been to invade Iraq.

Dave O'Gorman
("The Key Grip")
Gainesville, Florida


Calvin and Hobbes said...


Another great article. I always loved economics and one of my econ profs tried to get me to switch majors several time - but I never quite drank the Kool-Aid.

While I agree (as do you and Nate Silver) that the magic 60/filibuster proof margin in the Senate is not the number whereby everyone suddenly remembers they were elected to serve the people, etc... Rather, I would argue (and strongly so) that it is incredibly important from a mental point of view.

Imagine you're in the minority of a non-filibuster proof Senate, your vote is important, it means something because every vote for cloture counts. But in a filibuster proof Senate, your vote is essentially meaningless. Kind of like being a Democrat in Utah or Idaho. The states are so red, you'd be better off registering to vote in another state.

I realize that this over simplifies things as Nate points out Senators don't take the same position on every issue and their degree of conservatism/liberalism ranges from Oren Hatch to Bernie Sanders.

One other note, but on Israel. Israel not only really has nothing to lose by ratting out every last Hamas gunman, but they'd actually benefit because there'd be less gunman launching rockets over the wall. I'm sure Israel also recognizes that Hamas' "founding charter" (if you can call it that) does not (and will never) recognize Israel's right to exist.

I posed the question of what is the solution in Gaza to my brother-in-law the other day to which he replied that killing all of Hamas was the only way. As Jews, it's hard to separate ones' self from being personally affected by this ongoing crap, but as an engineer, I'm forced to look at it logically and realize:

1) violence begets violence, pretty much always.
2) you can't make someone change, they have to want it.

Which would lead me to my conclusion that teaching someone to want to change is the only answer. However, if that doesn't work, what's the answer?

The Key Grip said...

Great response, particularly vis-a-vis Gaza. I needed to do a better job of articulating that there was, at least in the short-term, a perceived upside to continuing the military operation.

Actually I have an outside-the-box idea about the middle east, but I'm *terrified* to write about it, for fear of managing to unite the entire region behind the cause of how wrong I am. When I grow some cajones, you'll apparently be one of the first people to know!