Game Theory as we learned it in class is when two different parties have to make a decision given two options and the possible outcomes for each option. Usually there is a best outcome for each party and a worst option for each party, while having some in-between options. In most cases, both parties would want to choose the option that avoids the worst possible scenario. We can use this theory to explain why the US and the USSR acted like they did during the Cuban Missile Crisis. Both countries had two main options to choose between:
The US could either
(1) Blockade Cuba to prevent supplies/backup or
(2) Attack the island to destroy the missiles that had been stationed there.
On the other hand, the USSR could
(3) Withdraw from Cuba to avoid conflict or
(4) Keep their missiles in Cuba and protect them.
From these choices, there are four different outcomes that could have happened. If (1) & (3) occurred, it would end in a compromise, as the US wouldn't try to start the fight and the USSR would remove their weapons from Cuba. However, if (1) & (4) happened, the USSR would have been able to keep their missiles near US borders, resulting in a victory for the USSR. If (2) & (3) happened, the US would have either been able to destroy the missiles due to the USSR withdrawing, or the USSR would have removed the missiles from Cuba, resulting in a victory for the US either way. Finally, if (2) & (4) happened, the US would have attacked a USSR defended territory, likely leading to a nuclear war between the two nations, the worst possible outcome for both nations.
With these options and outcomes, we can use game theory to see which options the countries should take. Since, in theory, both parties want to avoid the worst possible outcome, both the US and USSR would want to avoid a nuclear war, thus avoiding the options that could lead to it. In this case, the US wouldn't want to (2) attack Cuba, and instead try to (1) blockade the island, while the USSR would (3) withdraw from the island instead of (4) protecting their missiles. With the options of 1 & 3 being chosen, the Cuban Missile Crisis should end in a compromise of the USSR withdrawing from the island without being attacked by the US, which is what both countries chose in the end. While game theory isn't exactly the same as the Cuban Missile Crisis, since the US and USSR didn't have to make their decision at the same time and could react to the other's decisions, it helps to explain, in general, why they did what they did.
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I think that the conflict application of game theory makes a lot of sense because there is actually something at stake, such as the lives of the people in Cuba and the national security of either country. Both countries wanted to avoid the worst possible outcome, and that part of this was because of the mutually assured destruction that would result from a nuclear war. In economics, the same ideas apply, because companies are looking to reduce the possibilities of making the least profits. And a company's version of game theory might have an option they will default to no matter what in an effort to maximize profit, while the countries above had defaults in order to minimize the loss of life and security.
ReplyDeleteRobert, this was a great connection to history! I remember learning just how close we came to nuclear war in that year. Knowing that, I'm interested in why the two countries didn't make their decisions earlier, and with more certainty. Surely, if they wanted to avoid the worst possible outcomes from the beginning, then the logical choice would be to blockade Cuba for the US and withdraw for the USSR. However, history tells us that the two countries hesitated heavily when making these decisions. And I think you provided the answer to why this occurred. You mentioned that the two countries couldn't make their decisions at the same time, and part of that reason is likely that they didn't have enough information about the other country's situation. This problem translates to economics as well, because the lack of information on one or more parties can lead to decisions that aren't supported by game theory. For example, if Company A didn't know about the profits of Company B for their two choices, they couldn't make an informed decision, and may unintentionally choose the more risky choice. Anyway, this was a great post Robert, and I enjoyed reading it and thinking about the economic connection.
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