From the Harvard Business Review:
Understanding the Game Being Played in Washington
Some portray it as a Manichean struggle between good and evil. Warren Buffett says it’s “extreme idiocy.” I’d like to recommend another way of looking at the government shutdown and the looming battle over the debt ceiling in Washington. It’s a game, played by flawed-but-not-crazy human beings under confusing circumstances. In other words, it’s an interaction among “agents” who “base their decisions on limited information about actions of other agents in the recent past, and they do not always optimize.”...MORE
That quote is from economist H. Peyton Young’s “The Evolution of Conventions,” one of several works of game theory I plowed my way through this week in an attempt to find a way to think about the government shutdown and looming debt ceiling fight that didn’t make me want to bang my head against a wall. My reading made the dynamics at work in Congress and at the White House a bit clearer — and thus slightly less maddening, if not less ominous.
The debt-limit game
There are lots of different games being played in Washington at the moment, but the main one I have in mind pits the Democratic White House and Senate against the Republican House of Representatives over the federal budget. The deadlocked players have already landed us in a partial government shutdown, but it’s the 18th since 1976 and thus really not that big a deal. The far bigger stakes involve the federal borrowing limit that is due to be breached in a couple of weeks if Congress doesn’t approve an increase. Without further borrowing, much higher taxes, or draconian spending cuts — none of which may be possible or even legal on short notice — the government might not be able to service its existing debts, leading to a default. Congress has never allowed this to happen, so the consequences are unknowable, but they could be really bad.
Threatening to cause something really bad to happen in order to get your way is a negotiation tactic known as brinkmanship. Here’s a description from game theorist Thomas Schelling, in his 1960 classic The Strategy of Conflict:
If I say “Row, or I’ll tip the boat over and drown us both,” you’ll say you don’t believe me. But if I rock the boat so that it may tip over, you’ll be more impressed....
From the New Yorker:
How Cold War Game Theory Can Resolve the Shutdown
In late October, 1969, Richard Nixon and Henry Kissinger ordered a squadron of B-52 Stratofortresses, fully loaded with nuclear weapons, to race toward the Soviet Union’s border. For three days, they zagged along the edge of Soviet airspace, taunting Moscow. The operation, which remained secret for thirty-five years, was part of a deliberate White House strategy to convince the U.S.S.R. that Nixon and Kissinger were just a little mad.
In many negotiations, the prevailing side is the one most willing to take the fatal step. A union gains leverage if it’s really willing to strike; management gains leverage if it might actually shut down the plant. If you’re playing chicken with another driver who you know has had a lot to drink—or who has torn off his steering wheel—you’ll likely swerve first. If the Soviets believed that Nixon and Kissinger were capable of unleashing Armageddon, perhaps they’d be more likely to concede in talks over, say, Berlin.
The power conferred by madness helps us understand the slightly smaller, but still very serious, game theory at work in Washington this week. Would either John Boehner or Barack Obama really let the nation go into default? Surely worldwide economic calamity is a worse outcome for everyone than compromise. But as we approach the deadline, both sides insist they won’t cave. In one sense, Obama has the stronger hand: he’s merely asking that Congress pay America’s bills and its debts. But Boehner has Ted Cruz in the background, reciting “Green Eggs and Ham.” Obama can say he’s willing to let the nation default to protect his goals, but he’s known for a certain sense, one that is both calm and sound, and it’s hard to believe him. Boehner, meanwhile, can point to the suicide caucus and truly make the case that he has people on his side who are willing to destroy the country’s credit if they don’t get their way.
The second Cold War lesson comes from theFrom the Washington Post:Cuban missile crisis. On Saturday, October 27, 1962, as we took the last steps toward a conflagration, John F. Kennedy proposed a deal to Nikita Khrushchev. If the Soviets withdrew their missiles, America would publicly promise not to invade Cuba—and privately promise to remove Jupiter missiles from Turkey. He didn’t want people to know about that latter concession: having bargained with the Communists would weaken him. Khrushchev agreed. The world survived.
Part of what made the Cuban-missile-crisis deal work is that the two sides could take advantage of an asymmetry. The Soviet leader cared about satisfying his hard-liners; the American cared about popular opinion. That’s how many deals happen: a team with lots of good pitching prospects trades one to a team with two first basemen. (Later, savvy American negotiators tried to trade reductions in a missile-defense system they knew was deeply flawed for heavy reductions in Soviet offensive weapons.)
So what are the Jupiter missiles of the current negotiations? Unfortunately, there don’t seem to be any obvious asymmetries. (Nor is there much of a willingness to keep quiet, to help the other side look good.)
But as Ryan Lizza, Evan Osnos, and James Surowiecki discuss in the Political Scene podcast this week, finding something to trade must be part of the endgame. What can the Democrats give up that the Republicans want? How can Obama negotiate while still maintaining that he kept his pledge not to? Would he be willing to talk if Boehner agreed to abolish the debt ceiling permanently?
Once this is over, there’s an even more important lesson in game theory to absorb from the Cold War: that of the semi-doomsday machine that the Soviets built. This system, “Dead Hand,” gave Moscow the ability to take vengeance after a preëmptive American nuclear attack....MORE
How a game theorist would solve the shutdown showdown
Daniel Diermeier is the IBM Distinguished Professor of Regulation and Competitive Practices at Northwestern's Kellogg School of Management; he also holds appointments in law and political science and directs Kellogg's Ford Motors Center for Global Citizenship. A political scientist by training, he has written extensively on formal political theory, game theory and other topics relating to the modeling of political institutions. We talked on the phone Thursday afternoon; a lightly edited transcript follows.
Let's say you had to model the showdown between President Obama and House Republicans. Where would you start?
We have a tendency to think about this as a negotiation between a couple of big players. There's Boehner on one side, and Obama on the other side, and now the question is who wins. It's like the Cuban missile crisis. That's our image.
There's some of that going on, but things are more complicated here. The difficulty is that if you're the president, you're not negotiating with one person, but with a group of people — the House or the Senate, depending on what the issue is, and that makes things a lot more complicated. That's number one.But also, you're dealing with people who are public officials, and the so the game theory questions of what their reversion point or their outside option are all depend on public opinion. You have these two sides, plus you have a battle in the field of public opinion and a negotiation going on at the same time. So it's a far more complicated problem.
The other point is that as dramatic as this is, the types of situations that we see right now are really baked into the U.S. system of government. They are unfortunate and scary, but they in some sense follow by design. That's something where models can really help clarify things....MORE