19 June 2018
Author: Drew Calvert
Featured Faculty: Sandeep Baliga, Professor of Managerial Economics & Decision Sciences at Northwestern University's Kellogg School of Managment
The urgency of having a strong nuclear deterrence strategy during the Cold War sparked a debate between economist and Nobel laureate, Thomas Schelling, and President Richard Nixon about the effectiveness of the “madman” theory of international relations. Nixon believed that having a reputation for unpredictability was the most effective deterrent, while Schelling, by applying game theory, proved that building a reputation of consistent behavior was much more effective.
In this article, Sandeep Baliga, a professor of management at Northwestern University’s Kellogg School of Management, echoes Schelling’s game theory insights to explore the effects of unpredictable leadership on present day national security. Using game theory to study international relations, Professor Baliga has found that meticulous strategy, not unpredictability, is the best approach in conducting foreign policy. As Baliga puts it: “in national security, predictability can definitely pay.”
Author Drew Calvert brings clarity to the connection between game theory and international relations by understanding incentives and how they work. Incentives in game theory are best described in the principal-agent problem. In the principal-agent problem, a principal needs to incentivize an agent whose interests may not align with those of the principal. The author gives the example of an employer who might incentivize an employee to be productive by linking salary or bonuses to outputs such as sales. “If the employee believes the employer will renege on paying him, or that her payment is random and independent of performance, there is no incentive for the employee to work.”
On the other hand, an agent is more likely to respond positively to incentivization if he believes the principal will stay true to his word in an agreement.
This notion is where consistency becomes imperative for the US to build a reputation for following through on policies designed to incentivize the actions of both allies and adversaries. The example given in the article is the United States’ efforts to influence North Korea by incentivizing the de-acceleration of North Korea’s nuclear arms program. Calvert states “if North Korea is left without a clear sense of how the US might respond to aggression or appeasement, its leaders might choose a more reckless and destabilizing course of action.” This could hold especially true when considering other internal, and external factors the country may weigh as important. The underlying logic for designing incentives in the principal-agent problem is, in many ways, parallel to the US-foreign adversary relations. As Schelling stated, “if your opponents believe you will keep your word, then your word can shape their actions.”
I think many that find issue with consistency in foreign policy do so because, in an age of deliberate deception and asymmetric warfare, predictability carries with it a stigma of “outdatedness.” International relations is complex and situational, with each situation requiring a different response. I find game theory to be a beneficial approach to the intelligence context because of its effort to model interaction between decision makers, accounting for the unpredictability of human nature. In his book “Game Theory: Analysis of Conflict,” Roger Myerson defined game theory to be the study of mathematical models of strategic interaction between RATIONAL decision-makers. The article attempts to apply game theory models to understand the interaction between volatile decision-makers. The article makes the case that game theory proves volatility and unpredictability to be detrimental to incentivizing both allies and adversaries, and I don’t disagree. My critique comes in the form of a suggestion for more research to fill the white space in the article: even if game theory proves it doesn’t pay to be “the madman,” how do we apply game theory to incentivize “the madman”?