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Why does Daddy do it? Game Theory, Behavioural Economics and Donald Trump

Politics

No clue what’s going on in the reign of Donald the first? Game Theory and Behavioural Economics might help you find an answer.

You might be wondering, as we near the middle of Donald Trump’s first term as US president: what on earth is going on? Weren’t we supposed to be in the middle of World War III, the Great Depression 2.0 and the New Feudal Era by now? Instead, the US economy is booming, regulation is being cut left, right and centre, one of the largest tax reforms in history has been passed, trade deals are being renegotiated around the world, ISIS is all but defeated, and we might be very close to denuclearisation of the Korean peninsula.

Insane Clown President? If you’re reading Fire and Fury this might be your reality. Master strategist of 4D chess? If you’re reading Scott Adams this might be your reality. I want here to try and to help you understand why it might be a little of both using some Game Theory and Behavioural Economics. Using Game Theory and Behavioural Economics we can make sense Donald Trump’s behaviour as the persuasion strategy which wins a Hawk-Dove game. You win Hawk-Dove games like politics by being irrational, spiteful, loud and belligerent.

Now before you label me an alt-right Trumpist troll, let me head you off straight away by laying my political views on the table. I’m of a market anarchist persuasion, much aligned with the Centre for a Stateless Society. So what I’m about to outline is more, from my perspective, the tragic outcome of people’s desire to centralise authority to coerce others rather than any especial admiration for the President. In fact, it’s this sort of Game Theory and Behavioural Economics which persuaded me that centralised power creates more problems than it solves. Now let’s begin.

Game Theory: Politics as the Hawk-Dove Game

Politics of any sort, and especially geopolitics, is a struggle that can be characterised by a Hawk-Dove game. In a Hawk-Dove game, two players have two options available to them. They may either commit to enforcing their desired outcome, or they may back down. The trick in a Hawk-Dove game is its incentive structure. If both players enforce their desired outcome, there is disaster. If neither player enforces their desired outcome, it is unsatisfactory.

But if one party enforces their desired outcome, and the other party backs down, it is tolerable for the latter party, while the first party “wins”. You can imagine such a payoff structure using a simple numerical example you can adapt from wikipedia.

Example of a Hawk-Dove Game

The payoffs to each player in each scenario are contained in the cells of this matrix, the number on the left being the payoff to player A and the number on the right being the payoff to player B in each case. This sort of game should be familiar — it’s the same payoff structure as the game of “chicken” where juvenile men seek to assert their dominance by driving cars at each other until someone loses their nerve and swerves. These juvenile games are pretty much of the same form as most of politics too.

Think about the eternal war between Democrat and Republican. If the Democrats try to pursue their agenda but the Republicans try to stop them and enforce their agenda instead, both sides lose “blood and treasure” slogging it out on CNN, MSNBC, Fox, in the pages of the New York Times and Wall Street Journal, on the floor of the Senate in marathon filibusters and late night debates, and in the polls as ever more voters become disgusted with Congress as a whole. Though it would have been nicer if the Republicans had backed down, if the Democrats simply back down (as they often do in the name of “responsibility”), they get a tolerable outcome (they can hardly lose most of their seats due to gerrymandering) and they get to keep complaining and making noise. When the Democrats back down and accept the tolerable outcome, the Republicans win big(ly?).

Geopolitics is even more reflective of the Hawk-Dove game. Suppose Donald Trump decides a better NAFTA needs to be negotiated and announces his determination to withdraw from the treaty. If the Mexican government refuses to negotiate, both countries suffer devastating recessions when the treaty collapses. If the Mexican government cedes however, and allows NAFTA to be redrafted, it’s not as nice as if the existing NAFTA could continue, but it’s tolerable (as long as Trump doesn’t ask for too many concessions). When the Mexicans back down and accept the tolerable outcome, Trump wins by getting a better deal.

Or take the Iranian nuclear deal. Suppose Trump does rescind it as he has declared. If the Iranians refuse to negotiate we drift toward a potential war which will hurt both sides. But if they cede to the US they have a tolerable outcome — no war. It would have been nicer if the US didn’t force the issue, but it’s tolerable to not have nuclear weapons but avoid a devastating war. When the Iranians back down and accept the tolerable outcome, Trump wins by putting nukes out of the Iranian reach.

Or take North Korea. Early on, the “fire and fury” rhetoric of the President made it clear that this would not be an administration which would be happy to abide by the old system of bribing the North Koreans with aid in return for no weapon development. The North Korean regime could continue their belligerence and sink further into an extremely dangerous isolation given their increasingly lukewarm relationship with China, though it would hardly be ideal for the US either. Or they could accept a tolerable outcome whereby the regime buys a sort of security in return for denuclearisation. Less nice than if Trump backed down of course and kept giving them aid, but tolerable. When the North Koreans back down and accept the tolerable outcome, Trump wins by obtaining denuclearisation for two significant allies.

Now especially in these geopolitical examples, the Hawk-Dove game would require a little modification to reflect the relatively asymmetric nature of the disaster which might befall the players. The United States has the world’s biggest economy, the world’s most powerful military, and it’s pretty well removed from enemies by oceans on both sides. The disaster of both sides standing firm would fall more on the opposition than the US, which becomes important for the behavioural dynamics of the game.

There are three equilibria in Hawk-Dove games, three states from which there is no incentive for the players to deviate. The first two are the cases where one party backs down and the other party enforces its worldview and “wins”. You can easily check that these are equilibria using the payoff matrix above. The third is a “mixed strategy” equilibrium where players decide they’ll enact their courses of action with a certain probability which makes the other player enacts their courses of action with a certain probability too. This third case is of less interest to us here, and it requires one to suppose expected utility theory in any case.

Now the question is, how do you make sure you “win” the Hawk-Dove game? How do you make sure that in the game you’re playing, you settle down at the equilibrium where your opponent backs down and you “win”? Behavioural Economics helps us here.

Behavioural Economics: winning Politics through Persuasion

To win a Hawk-Dove game you need to do two things which Behavioural Economics tells us are possible.

Firstly, you have to be irrational. You have to swear black and blue that no matter what, you will not back down even though there’s an incentive to do so. You have to be a “deontologist” rather than a “consequentialist”. It’s irrational to be a Hawk in all cases — because there’s an incentive to deviate to avoid catastrophe if your opponent is enforcing their worldview. In fact, you not only have to be irrational, but in some manner spiteful, willing to hurt yourself to hurt another. But unless you commit to irrational spite, you don’t eliminate the possibility of your opponent winning.

Secondly, you have to persuade the other player of your spiteful irrationality. Your opponent must believe that you will act to spite them even at a cost to yourself. They must fully believe in your irrational commitment to push your agenda and enforce your worldview, no matter what, even if it courts catastrophe.

Now put these two things together. If your opponent knows, or believes, that you’re “insane”, or a better word might be “committed” enough to spite the world by holding to pushing your agenda and enforcing your worldview no matter what, it effectively reduces their choices to two alternatives. They can either invite catastrophe by pushing their agenda, or they can back down and arrive at a tolerable outcome. You’ve removed a state of the world where they can “win” from the realm of possibility in their mind, so now they only have the choice between spiteful catastrophe, or being reasonable and settling for the tolerable.

Notice here the truth to the idea of 4D chess. On one level this behaviour is dangerous, hot-headed and irrational — “insane” and totally unreasonable. On another level, it’s coldly calculating and rational almost to the point of autism. It reminds one, in fact, of the exploits of Napoleon Bonaparte, who would launch devastatingly daring campaigns which would have his enemies in disarray with but only the option to be rational, reasonable, and cede (literally) to his just-tolerable demands lest all of Europe drown in blood. He came close to being the second Charlemagne until first the Russians and then Wellington changed the game from a Hawk-Dove game to a game of attrition.

Once we enter this realm we really enter the realm of behavioural economics. In fact, we go so far into it that we almost exit it and enter the realm of psychology proper, for the ability to “win” the Hawk-Dove game depends entirely on the ability to persuade, which is a psychological problem.

n order to persuade someone, you need to lay out a simple idea (preferably in narrative form) for them based on facts they already know which don’t contradict their current mindset and grab their attention. In the case of a Hawk-Dove game, you need to grab your opponents’ attention and in very few words “connect the dots” in your opponents’ mind about why you won’t budge. This takes a degree of psychological acuity, but there’s essentially a process one can follow: work out what your opponent thinks, then find the simplest possible way to extend those thoughts so as to “complete” the idea that you aren’t going to budge. It also really helps for persuasion purposes if, as is often the case in foreign policy, your side might be hurt badly, but your opponent may end up dead — it lends credence to your spitefulness.

To illustrate, take the North Korean situation. The most compelling assessment of the regime’s mindset is that it is desperately frightened that the rest of the world doesn’t take it seriously enough to negotiate with it in such a way as would allow it to survive. It’s terrified the world thinks that it could topple it if it wanted to especially now China has a relatively lukewarm attitude toward it. Maybe “fire and fury”, “Little Rocket Man” and “my nuclear button is bigger and better and actually works” weren’t such insane things to say after all. Mocking and demeaning. That’s how you speak to a petulant child you’re willing to put in their place even if it costs you a bit. It gives a clear sign you don’t take your opponent seriously and you’re getting close to being willing to starve him out even at a cost to yourself.

Or take the rhetoric over trade. The President has been so aggressive and belligerent about improving the US trade balance it appears that he has become committed to improving it even at the cost of cutting the US off from the global economy in a trade war. The US is still sufficiently large an economy that this would do significant damage to the global economy compared with other countries being reasonable and negotiating trade deals — which the President has made known, is an option. If the President is politically committed, so apparently emotional, so apparently spiteful enough as to be willing to hurt the US just to hurt the world more for not negotiating better trade deals, it is better for the rest of the world to “be reasonable” and negotiate a tolerable outcome rather than invite catastrophe.

And so on and so forth. There is a pattern emerging with Donald Trump’s Presidency. He again and again makes loud and irrational commitments to pursue a particular policy even at a cost to the US, seemingly just to spite the world. He increasingly builds a reputation for holding an almost insane commitment to having goal “x” achieved even if it comes at a cost to the US and builds a belief that his agenda will be pushed. Increasingly, he builds a belief that the only reasonable response is to back down and accept a tolerable outcome in the face of petulant, vicious irrationality. If you want to win a Hawk-Dove game such as politics, and especially geopolitics, you can do worse than to study the Trump presidency. Trump, like Napoleon before him is either extremely lucky he finds himself playing a Hawk-Dove game where his loud, spiteful, irrational belligerence is rewarded, or he is a master at playing an extremely dangerous game which requires real psychological acuity to win.

Why does Daddy do it? Because it wins the Hawk-Dove game

So, to summarise, one way to understand the Trump presidency is to apply Game Theory and Behavioural Economics. The President’s loud, spiteful, irrational belligerence is exactly the way to “win” the Hawk-Dove game that characterises much of politics by potent persuasion. An opponent is left with two alternatives: accept the sub-optimal yet tolerable outcome, or invite catastrophe. The most “reasonable” player in a Hawk-Dove game is the one who loses. The player who can, through loud, spiteful, irrational belligerence persuade their opponents they will pursue a policy that allows them to “win”, even if it ends up in catastrophe, is the one who wins.

By way of conclusion, you might be suspecting I’m a closet Trumpist admiring “Daddy’s” strategy and 4D chess playing. I’d like to clear that up. As I said, and as perhaps makes more sense now, it’s actually this sort of reasoning which contributed to my preference for market anarchism. Like it or not, when you create a nexus of power for the purpose of imposing worldviews by coercion, it is the exception that proves the rule for a Hawk-Dove game to not emerge. In coercive games somebody wins, and somebody loses — by definition. And every now and then, a Wellington or Kutuzov emerges to stop a rampaging Napoleon at a Waterloo or Borodino when things become intolerable and a slaughterhouse ensues. Work out who’s who on your own time, but I’d just as soon abolish the root cause of the problem.

 

This article was first published on medium.com