Pursuit of Truthiness

my gut tells me I know economics

The Strategy of Conflict

with one comment

The Strategy of Conflict"" is a book by econ Nobelist and game theorist Thomas Schelling.  The book reminds me of Milton Friedman’s book Capitalism and Freedom (which I reviewed here), since both are books from the early 1960’s that have been popular and influential and yet still seem ahead of their time in many ways.  Schelling explains the basics of game theory in a way that is accessible to those with no background in math or economics.  There are many tables, and parts 3 and 4 have some equations, but I plan to recommend parts 1 and 2 to ambitious Principles of Economics students who express interest in game theory.  The book is so easy to understand because it is full of short, down-to-earth examples, many applied to everyday life and many others to the US-Soviet conflict.

One key idea of the book is that in bargaining, “weakness” is often a strength.  One side can benefit by reducing their own ability to communicate, or make choices, or benefit from certain choices.  Another key idea is what would later be called the “Schelling point”, the focal point of players’ expectations that may have more to do with idiosyncrasies of the players or superficial aspects of the game than with the usual abstract, mathematical, rational method of solving games.  This explains the importance in practice of ideas and slogans like “a slippery slope”, “a line in the sand”, or “Fifty-four Forty or Fight!“.

The major reason I say the book is ahead of its time is Schelling’s insistence on applying game theory to real life, and changing game theory so that it can be more usefully applied to real life.  He reviews some experimental tests of game theory and proposes many more; I don’t know the literature well but I believe many of these proposals have yet to be carried out.  He demonstrates the importance of the details of games that most game theorists would still ignore, for instance asking:

Another set of questions, also pertinent to problems of limited war, international or other, would be whether a stable, efficient outcome is more likely when the connotations of the game -the names and interpretations that are overtly attached to the moves and pieces and objects on the board — are familiar and recognizable or when they are quite novel, unfamiliar, and unlikely to inspire similar notions in the two players. Is it — to speak of the game in a particular extensive form — more likely that rational players can keep a war limited in Southeast Asia, using conventional and atomic weapons, or in a battle against an unknown adversary on the surface of the moon, using strange bacterial weapons? These are important questions; they are at the very center of game theory; and they are questions that cannot possibly be given a confident answer without empirical evidence. And there is no arguing that rational players have the intellectual capacity to rise above these details of the game and ignore them; the importance of the details is that they can be supremely helpful to both players and that rational players know that they may be dependent on using these details as props in the course of their mutual accommodation.

I recommend the book to anyone interested in game theory, foreign policy, bargaining, economics, cooperation… life.


Written by James Bailey

May 19, 2011 at 2:52 pm

One Response

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  1. […] mechanism.  The Fed makes believable commitments every day.  It does not need to resort to Schelling-style special tricks like having its employees make contracts with 3rd-parties to lose lots of money if […]

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