Wednesday, April 15, 2009

Game Theory

M. Shane Smith

According to the author, "Game theory provides analytical tools for examining strategic interactions among two or more participants." By using game theory, analysts can gain insight into social relations between individuals and, by extension, states. Individuals and state actors are trying to fulfill goals that provide them with the best possible outcome, however the best possible outcome for one actor may be the worst for another; thus game theory is a tool that can be used to develop strategies to be applied when dealing with multiple actors who have multiple interests. "Just as we may be able to understand the strategy of players in a particular game, we may also be able to predict how people, political factions, or states will behave in a given situation."

Five elements of game theory as an analytic tool are highlighted:
  1. players, or decision makers;
  2. strategies available to each player;
  3. rules governing players' behavior;
  4. outcomes, each of which is a result of particular choices made by players at a given point in the game; and
  5. payoffs accrued by each player as a result of each possible outcome.
Game theory assumes that each player will pursue a course that brings them the greatest reward, and that by cooperating with other players, everyone can reach a mutually beneficial outcome. This is not always the case, however, as mutual distrust may hinder the advancement of beneficial interests and interfere with cooperation. This may send actors down a path that leads to a mutually destructive outcome. The author provides the example of the US vs USSR during the Cold War:
"For example, deterrence theory has guided U.S. defense strategy since the end of World War II. It assumes that a credible and significant threat of retaliation can curb an aggressor's behavior; if an individual believes that aggressive behavior may trigger an unacceptable and violent response from others, he or she is less likely to behave aggressively. The threat of reprisal does not directly reduce the probability of violence; instead, the perceived benefit of aggressive behavior decreases, in the face of probable retaliation. If two individuals recognize that their best interests lie in avoiding each other's retaliation, neither is likely to initiate hostilities. This was the guiding principle behind U.S.-Soviet relations during much of the Cold War."
Ultimately both sides cooperated to come to a mutually beneficial outcome; however, had serious distrust led to each side independently pursuing what was best for them, the conclusion may have been nuclear annihilation for both.

The use of game theory allows us to identify both best case scenarios, as well as worse case scenarios, and pursue a path that is mutually beneficial to all actors. "Since games often reflect or share characteristics with real situations -- especially competitive or cooperative situations -- they can suggest strategies for dealing with such circumstances."

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