Sunday, February 24, 2013

The Prisoners' Dilemma

Contrary to what I said in my prior post, I think it might be possible to do a bit of sophisticated negotiation analysis on Congress's apparent inability to prevent the sequester from taking effect. What occurred to me is that the best analogy to the sequestration fight might not be a game of chicken; it might be the classic game theory problem known as the prisoners' dilemma.

In a game of chicken, either party is better off jumping off rather than going over the cliff, and each has the independent ability to make that decision. The only point of the game is to wait until the last possible second to jump off, so that you are not the "chicken." It's a stupid game, because you have to chicken out at some point to survive the game. All you can do is hope that the other guy chickens out before you do. And that is not exactly what is happening in Congress right now, because for both parties right now, the sequester might appear to be a better alternative to giving in to the other side completely. Right now the Republicans are saying to the Democrats, if you don't want the sequester, then you must agree to a different package of spending cuts, cuts that will harm social programs instead of defense and operations. Most Democrats respond that while the planned cuts to defense and other discretionary spending are terrible, cuts to social safety net programs would be even worse. On the other side, the Democrats are saying to the Republicans, if you don't want the sequester, then you must agree to a package that includes some revenue increases. And most Republicans respond that while they agree with Democrats that the sequester cuts are terrible, any kind of revenue increase, even by closing tax loopholes or eliminating deductions, would be worse. Neither wants to give in to the other side's demands.

In that way, the choice facing Congress is lot like the prisoners' dilemma. The prisoners' dilemma goes something like this: the police separately approach two prisoners who are accused of committing a crime together and give each the following choice: you can give evidence against your alleged co-conspirator (defect) and go free, or you can stay silent (cooperate), but if your partner gives evidence against you, you will get a twenty year sentence. If both parties cooperate and stay silent, however, the police only have enough evidence to convict both of a lesser crime, so both will serve a one year sentence. If both defect, both get put away for five years. Here's a depiction of this typical example of the problem:

Obviously, it is best for both prisoners to cooperate and receive the second best outcome, but how can each one learn to trust the other? The temptation is powerful to hope the other party will trust you while you rat him out and go free. And that's why parties in early stages of negotiation, before they learn to trust each other, will usually end up with the second worst outcome. The "rational" choice, when each party is thinking only of his own selfish interests, is for both to come to the conclusion that they should rat out their partner, in the hope of going free, but at worst getting 5 years instead of 20. The best choice, on the other hand, is not the same as the rational choice. The best choice requires trust and cooperation, and gives both conspirators a minimal one year sentence.  

Can Democrats and Republicans, through a process of trust and cooperation, come up with a better alternative than the sequester? Of course they can, but that alternative must involve some pain for each side. The only alternative to the sequester is a negotiated resolution, in which both sides have to accept a bit of something unpleasant for each that the other side wants. Otherwise they are surely headed for getting a lot of what both sides don't want.

It is rare for Congress to design its own prison, but that appears to be what they have done in this case. It probably seemed to make sense at the time to design a process in which an acceptable outcome could be reached by a process of trust and negotiation. But as in most prisoner's dilemma negotiations conducted by people who do not trust and do not want to cooperate with each other, we are instead likely headed for a pretty bad outcome.


  1. The White House presented sequestration and then Senator Kerry voted for it. What are you going to write a month from now when the next cliff appears?