I’m Seth Kurtenbach, and I like Game Theory.
I rarely pay attention to the news, but I couldn’t help overhearing something about Congress failing to reach an agreement about raising the debt ceiling. Apparently, John Boehner has just walked away from talks with Obama, and Obama cannot understand why he would do such a thing, given the quickly approaching impending doomsday date of August 2. I have a hypothesis.
See, the Republicans and Democrats are locked in a game of Chicken with each other. This game takes its name from the 1950′s games toughguys would play with each other, racing each other’s car toward one another at breakneck speeds. Whoever swerves is the chicken. Whoever goes straight is the tough guy. Right now, the two political parties are barreling toward one another, and neither wants to swerve. In Game Theory, we call a particular kind of solution a Nash equilibrium. This means that each player is playing his best response to what the other player is doing. In Chicken, if Sammy decides to swerve, then Johnny does best by going straight. If Sammy decides to go straight, then Johnny does best by swerving. Here is a game matrix of the player’s strategies and payoffs:
Okay, now clearly neither player wants to end up ramming into each other, the payoffs of which can be seen in the bottom right cell. The outcome (straight, straight) is the worst-case scenario, in which the U.S. defaults on its debt. Obama seems to have been hoping that Boehner would realize how deadly Chicken is and opt for the (Swerve, Swerve) cell, in which both parties avoid disaster and reach a reasonable agreement to neither’s benefit or loss, all things considered. However, (Swerve, Swerve) is not a Nash equilibrium. If Boehner thinks Obama will swerve, then Boehner does best to play Straight, because then his payoffs change from 0 to 1.
Another aspect of Chicken is the use of signaling. Sometimes, a player can issue threats or behave irrationally in order to throw off the other player’s strategy. Here, Boehner is basically ripping the steering wheel off of his car, to signal that he has no intention to Swerve. Thus, if Obama wants to avoid collision, he’ll have to be the one to Swerve. The Republican party are masters of this technique. They essentially say, “we refuse to compromise, so we guarantee that the game’s outcome will be in the right column; it is up to you guys whether we collide or you Swerve to avoid us.”
Obama said he will veto the “cut, cap, and balance” bill, hoping to signal to the Republicans that he has no intention of Swerving. Unfortunately, given the track record of the Democratic party, they are virtually unable to issue credible threats. In order to issue credible threats, one must commit to non-compromise every once in a while, and perhaps suffer short-term loss. If defaulting would be as bad as it is made out to be by the media, then now is not a good time for the Democrats to prove their willingness to play Straight. I predict that Obama will Swerve and the Republicans will play Straight. This means that the Republicans will essentially benefit slightly by their more believable willingness to ruin the country’s financial credit, and the Democrats will take a hit in order to prevent disaster.
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