A Russian occupation of Crimea raises the specter of the Cold War, in which the nuclear stalemate between the United States and the Soviet Union devolved into regional disputes around the world.
While military and political frictions made the biggest headlines, the Cold War couldn’t be well understood without using economic theory — specifically, game theory, which analyzes the strategic logic of threats, credibility and conflict.
It’s worth viewing the crisis in Ukraine through the prism of game theory, too, as applied on several fronts:
NUCLEAR DETERRENCE From the standpoint of game theory as developed by Thomas C. Schelling, a 2005 Nobel laureate in economic science, the conflict can be seen as a case study in nuclear deterrence. That’s because, after the Soviet Union split into many pieces in the 1990s, a newly independent Ukraine gave up its portion of the old Soviet nuclear arsenal. In part, it did so in exchange for a memorandum supporting its territorial integrity, signed by both Russia and the United States.Eliminating its nuclear weapons may have seemed a good deal for Ukraine at the time, and it can be argued that the world became a safer place. Yet if Ukraine were a nuclear power today, it would surely have a far greater ability to deter Russian military action.TIPPING POINTS Long before Malcolm Gladwell popularized the concept, Mr. Schelling created an elegant model of tipping points in his groundbreaking work “Micromotives and Macrobehavior.” The theory applies to war, as well as to marketing, neighborhood segregation and other domestic issues. In this case, the idea of negotiated settlements to political conflicts may be fraying, and the trouble in Crimea may disturb it further, moving the world toward a very dangerous tipping point.First, some background: With notable exceptions in the former Yugoslavia and in disputed territories in parts of Russia and places like Georgia, the shift to new governments after the breakup of the Soviet Union was mostly peaceful. Borders were redrawn in an orderly way, and political deals were made by leaders assessing their rational self-interest.In a recent blog post, Jay Ulfelder, a political scientist, noted that for the last 25 years the world has seen less violent conflict than might have been expected, given local conditions. Lately, though, peaceful settlements have been harder to find. This change may just reflect random noise in the data, but a more disturbing alternative is that conflict is now more likely.Why? The point from game theory is this: The more peacefully that disputes are resolved, the more that peaceful resolution is expected. That expectation, in turn, makes peace easier to achieve and maintain. But the reverse is also true: As peaceful settlement becomes less common, trust declines, international norms shift and conflict becomes more likely. So there is an unfavorable tipping point.In the formal terminology of game theory, there are “multiple equilibria” (peaceful expectations versus expectations of conflict), and each event in a conflict raises the risk that peaceful situations can unravel. We’ve seen this periodically in history, as in the time leading up to World War I. There is a significant possibility that we are seeing a tipping point away from peaceful conflict resolution now....MORE