What is Game Theory?. It is part of the theory of purposeful behavior commonly known as rational choice theory . It specifically focuses on situations with two or more interdependent decision makers. Economic applications Cheating on a cartel Trade wars between countries Advertising.
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What is Game Theory? • It is part of the theory of purposeful behavior commonly known as rational choice theory. • It specifically focuses on situations with two or more interdependent decision makers. • Economic applications • Cheating on a cartel • Trade wars between countries • Advertising
Cheating on a Cartel • Cartel members' possible strategies range from abiding by their agreement to cheating. -Cartel members can charge the monopoly -price or a lower price. -Cheating firms can increase profits. -The best strategy is charging the low price. -OPEC
Trade Wars Between Countries • Free trade benefits both trading countries. • Tariffs can benefit one trading country. Internal and external factors Who will be the first to reduce tarrifs? Special interests requesting protection
Advertising • The prisoner's dilemma applies to advertising. -All firms advertising tends to equalize the effects. -Everyone would gain if no one advertised.
Game theory and Defense Policy What was the strategic relationship between the U.S. and the Soviet Union over the course of Cold War? What is the difference between “defense” and “deterrence”? What are the strategic consequences of spy satellites, BMD or ABMs (Anti-Ballistic Missile systems)?
Nuclear Negotiations • If deterrence (MAD) was so effective, why agree to reductions in arsenal? • SALT (1972) • SALT II (1979) • START (1991) • START II (1993) • Treaty of Moscow (2002)
Sequential Games and Credibility • Some games are sequential. • A sequential game is a game in which players make at least some of their decisions at different times. • Moves are observable • “Credibility” is especially important in sequential games (and international politics). • Stable and successful interactions often require credibility: deterrence, cooperation, diplomacy • How is credibility protected or lost?
Repeated Games • Repeated games differ form one-shot games because people's current actions can depend on the past behavior of other players. • Cooperation is encouraged. • SALT, SALT II, START
Analysis Of Repeated Games • In the tit-for-tat strategy, players cooperate unless one of them fails to cooperate in some round of the game. • The others do in the next round what the uncooperative player did to them in the last round.
Commitments • People can benefit from being able to limit their future actions so that they cannot do what they would want to do in the future. • Commitments can provide valuable benefits by restricting future choices in a way that changes other people's actions to one's own benefit. • Committing to future action is often difficult, especially in the international system. • NATO – “an armed attack against on..shall be considered an attack against them all.
Game theory & Irrational Behavior Why is it sometimes rational to appear to be “irrational”? Why do nations (and other actors) often sink so many resources into trying to win a conflict that the value of the resources expended far exceed the value of what is at stake in the conflict? The Security Dilemma – developing a national defense can be seen as a preparation for war Spiral Model – both sides fear surpise attack, creating an incentive for a pre-emptive strike.
Conflicting Goals of Military & Politicians • Powell Doctrine • Vital national interest; clear objectives; overwhelming strength of force; public support; last resort • Political Doctrine • Show resolve, support democracies, deter and retaliate, peacemaking, peacekeeping, humanitarian aid, drug trafficking
End of the Cold War • Regional Conflicts (Gulf War; N., S. Korea) • Terrorism, subnational units • Unconventional wars • Populated areas • Suicide bombers • Counterinsurgency • Requires boots on the ground, rather than heavy armor • Peacekeeping Role