Game theory in debt ceiling negotiations

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A prisoner's dilemma with an outside option fo...

This is actually prisoner's dilemma, but it's easier than finding another image that I'm allowed to use. Image via Wikipedia

Experts in game theory say that the best way to win a game of chicken – the one where two people drive cars towards each other until one of them swerves – is to, in plain view of your opponent, remove the steering wheel and throw it out the window as the two cars are careening toward a collision. By doing so, the other guy has only two choices – end both players’ lives or swerve and lose the game. Either way, the other guy loses, so he might as well take the smaller loss and swerve out of the way.

TPS report, as a policy, does not get involved in politics mainly because our tolerance for nonsense has gone from “not much” to “even less than not much” over the last five years or so. So, we offer no political view of winners and losers in the US’s debt ceiling negotiations. However, we are interested in the elements of this drama that relate to negotiation.

There are many instances of political negotiation which represent a search for the best result for both parties, i.e. a more collaborative negotiation. However, this instance seems to me to be about the closest a political negotiation can come to a game of chicken.

If we turn our attention back to Game Theory, the possible outcomes of this game are Democrats gain a small victory, Republicans gain a small victory, or both lose heavily. I’m oversimplifying here, but let’s say that a small victory for Dems is that the debt ceiling is raised, but spending cuts are smaller and don’t impact their pet programs. Let’s also assume that Republicans and Tea-partiers win when the debt ceiling is raised but cuts are deeper and don’t affect their pet programs. A loss for both represents no agreement on raising the debt ceiling and some level of crisis for the US and even the world economy.

In a pure game of chicken, both sides stand to win and lose equal amounts. However, in reality, purity is rarely found. Maybe one driver has Christiano Ronaldo abs, Beckham money, and is dating Pippa Middleton while the other guy’s shape depends on the chair he is sitting in, can’t hold a job, and who’s dating prospects are as gloomy as a London evening in early December.

In this case, the Republicans are best placed to toss the steering wheel out the window (i.e. risk financial crisis), since the Dems are in power. President Obama and the Dems seem to have more to lose, which damages their capacity to project power. Plus, don’t discount the fact that tea-partiers – whether you love’em or hate’em – have successfully convinced people that they are insane enough to risk a US government default. Never underestimate the power of crazy.

Add it all up, and it looks like the conservative end of the political spectrum holds the cards here, and that, at least in the short term, chicken is the right game.

Pippa, stop calling me. I’m already taken.

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One Response to “Game theory in debt ceiling negotiations”

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