As you may have gathered from previous posts on sustainability and design thinking I am, by nature, an essential optimist.

That said, I never held out a great deal of hope for Copenhagen. It all seemed destined to play out like the prisoner’s dilemma, and so it has – narrow self-interest drawing leaders away from binding agreements, even though the rewards are infinitely greater if we all collaborate.

But, you know what? I’m not down about it. Indeed, in some respects I think Copenhagen has done us a huge favour.

To borrow from Johann Hari’s fantastic editorial in yesterday’s Independent, it’s simply thrown into sharp relief the fallacy that we need politicians as some supranational group of mummies and daddies legislating for our safety.

They had the irrefutable evidence in front of them and still they couldn’t agree. As a result, the message is now loud and clear – if you believe something has to be done about climate change, don’t bother waiting for politicians. It’s up to us now to do what we already know needs to be done.

In any event, change, in the order of magnitude required, is never going to be achieved by beating recalcitrant CEOs over the head with a big regulatory stick. It will only be achieved when they recognise that it’s in their own commercial interest; that sustainability-led innovation and transformation actually provides a better route to bigger profits.

In that sense, whether politicians reach agreement or not is largely an irrelevance. What matters is business leaders getting their heads round the business value of sustainability, and that’s an entirely independent process.

Pacifism. We’ve been sold on this ideal for long time. It serves its purpose often enough when it comes to battle oppression, injustice, discrimination.  I can’t ignore it created some of the most inspirational leaders: Gandhi, the Dalai Lama, and Martin Luther King Jr.

I even admire Tevye in “Fiddler on the Roof” when he scoffs at the idea of violent defense:  “An eye for an eye, a tooth for a tooth…Very good…That way the whole world will be blind and toothless”.  It seems witty and wise, until you really think about it.

 I too, was brought up learning “Two wrongs don’t make a right”and “Turn the other cheek”.

Now as a parent, I’m deciding not to raise my kids this way. 

I was inspired by a quote I read in Defiance by Nechama Tec (a local author whose book has been turned into a movie with the same title): “With fine people we have to be good and proper, but with bad people we have to be bad.”

Those brought up on this type of parenting are more likely to be brave, confident, and resilient to mental or physical attacks.  They are aware that they are not to blame for others malignant behavior, and become impervious to the harm it intends to inflict.  Those who aren’t brought up this way (like me), internalize and blame themselves for attacks: causing a sense of shame, low self-esteem, and  possibly a belief that being treated poorly is just a part of life they have to endure.  I’m here to tell you, you don’t.  Stop being a victim. “Don’t get mad get even!”

I practiced this as an adult while out casted by my fellow coworkers: they were offended when I ate lunch with another department.  I was often privy to where they ordered their food, and what they were ordering.  With a quick phone call, I simply changed their order, often adding jalapenos.  While it didn’t make me feel any better about being an outcast, I at least got a good chuckle.

Then last summer I watched my life-jacket clad 3-year old daughter bobbing too close to a group of older kids.  I knew she hovering a little too close, but hoped they would play with her. What ended up happening was she got a bucket of water dumped on her head.  As soon as she could bob her way over to me, she started crying.  I tried to soothe her and diplomatically tell her to just ignore anyone who is mean.  This did nothing to soothe her, I think instinctively she knew that being passive is not always the answer. What choice did I have?  I couldn’t teach my child to be comfortable as a victim. I told her sternly: “Find that boy and dump a bucket of water on his head.” I’d like to believe that boy learned a lesson that day- that there are or, at least, should be repercussions for your actions. 

I, in no way, will allow my kids, to the best of my ability, to become bullies.  Nor can I say they are saints, but they are young so it’s a learning process.  And while my protective mom side wants to see my kids go unscathed when they misbehave, I recognize that sometimes they deserve what they get.

I’d like now to refer to a particular sociological game theory dubbed “Tit for Tat” (Related to the Prisoner’s Dilemma).  Summed up, a person should not attack unless they are attacked.  They should only attack the way they have been attacked. They should quickly forgive…. There is more to it, as it assumes that the initial aggressor will likely attack again, so the defender should be able to defend themselves again.  But, in the toddler world, let’s just hope it ends at the initial “tit”.

So I suggest giving your kids a high-five and a pat on the back when they push back, yell back, or take back.  But follow these guidelines: younger children and especially babies are exempt;  never assume all actions are malicious- sometimes it’s just how kids initiate play; and “know when to walk away”: a battle with a much bigger kid just isn’t going to turn out well. 

Guidelines that parents must follow: ignore your primal instincts of being your kids backup, instead just guide them on how best to handle the situation; explain to your kid that you will always be there to defend them, but there is a strict rule about reprimanding another’s kid. The rule, simply put, goes something like this “Stay away from my kid, jerk”.

The climate change summit convening in Copenhagen this month is unlikely to produce a binding legal agreement on carbon emissions considering “it is a prisoner’s dilemma, a free-rider problem and the tragedy of the commons all rolled into one” according to The Economist special report on the subject.

An alternative characterization of the complexity of climatic cooperation is in the context of property rights.  In his fundamental paper, The Problem of Social Cost, R. H. Coase posits that bargaining between agents can achieve a socially optimal outcome with respect to external damages caused by economic activity as long as property rights are well defined, meaning the responsible party is clearly liable for the damages (1960).

Unlike localized “end-of-pipe” pollution (or in Coase’s illustrative example end-of-cow mastication), the damages from greenhouse gas accumulation in the atmosphere cannot be directly connected to individual sources within the same political jurisdiction.  Therefore, an optimal contract between those benefitting and suffering from such pollution remains a “pipe dream” until legal liability is distributed amongst the international community.

R. H. Coase.  The problem of social cost. The Journal of Law and Economics, Vol. III, 1960, pp. 1-44.

Let me tell you why I’m superior to you, and how you can be superior to you, too.

Get in mah belly!

So since I don’t sportz, and since the boss took a major sabbatical, and since Pipez is holding it down like woah, let’s talk about how awesome I am.  Again. The context is video games, and the game is Dragon Age.

WARNING: DON’T SPORTZ AHEAD

Yes, TRG is going to rambulate about video games again.  That’s ramble and ambulate put together in one synergistic package.  What do you want?  We gave you the Madden review, which literally almost killed Goldfish, and only 4 people read it.  Assholes.  If you’re such a fratboy that you need to get your rocks off to only college football, go back to our ECU post, where we talk shit about a fictional state in the Union called East Carolina and their hillbilly fooseball team.  The rest of us adults are moving on.

One thing first, and this is Inside Baseball for our long-time readers.  Pipez really has been stepping his pimp game up lately.  Do we even need Rex?  Power to the people.  I would recommend a bloodless coup d’etat, except it kindasort already happened.  Pipez is the fucking future, what y’all ninjas can’t see the facts?  Once Wanks finishes amortizing his prenup and  2CRB finishes his current steroid cycle, they’ll be major forces.  I am, and always will be, the self-aggrandizing court jester.  Moose Knuckle will show up every time Tigah Tigah Woods cheats on his incredibly hot nanny wife.  But for now – who you haters think you talking to?  Pipez the fucking boss.

Start calling Rex “Emo Wally Pipp“, because he ain’t getting his job back.  Maybe he can learn to play outfield or something?

GAMEZ REVIEW – DRAGON AGE: ORIGINS IS GO

Anyway, this isn’t about them, it’s all about me and Dragon Age.  Here is how superior I am to you – even my video games have gravitas.  Yes, I just went there, and screw your human-situation lecture in its ass.  The doctrine of preemption, bitch!  I’m such a good Republican.

The video games you play are cotton candy for pubescent teenagers.  NCAA.  Madden.  Halo.  Modern Warfare.  Fun games, those.  You should be proud of yourself for taking up residence in the gaming zeitgeist.  You’re also taking up air.  Here is what Goldfish has to say on the subject: “Like a la bimbo, these idiots need to get the fuck out and stop diluting my medium.”  True that.

Grown ass men play games like Dragon Age.

Yes, it has swords and dragons and +5 to eternal virginity in RL.  It also happens to be the first game I’ve ever played that has real choice.  Bioware has been doing “good/evil path” games for a while, most notably with Star Wars: Knights of the Old Republic.  Do you want to be a good little Jedi, or do you want to be a badass Sith lord?  Choose for yourself.  Everyone copies Bioware on this stuff, but Bioware itself has been trying to evolve from this good-or-evil milieu.  Life is grey, and art should reflect life.  Yes, I just went there again.  Screw your cultural-analysis-of-the-Renaissance lecture in its ass.  Preempt +2.

Dragon Age is maybe the first game I’ve ever played where the player needs to take time and weigh all the options before making a decision.  The path beyond the choice isn’t clear.  I have no idea how it is going to turn out and am making decisions without gamer precognition.  This is nerd-revolutionary.  I’ll be concrete for you lizard brains.

Typically in a role playing game, you get 2 choices.  Choose A and D, E, and F happen.  Choose B and X, Y, and Z happen.  The game doesn’t overtly tell you this most of the time, but it isn’t rocket science.  Gamers have clairvoyance, which actually diminishes from the playing of the role.  That’s bad because, after all, it is a role playing game.  In the defense of game developers, it’s hard to make a game where things are fun and have mass appeal but still have subtlety.  Most gamers don’t want  subtle.  They want a bigass bastard sword to fuck up some ogre and then get the phat lewt he drops.  They like the sword because it is on fire (literally) and they get to say “bastard”.

Dragon Age has that - check out the screenshot at the top.  But it also has real choice.  One example (and a tad bit of spoiler but not much).

Bow to your sensei. All 4 of them.

First, you come across a ransacked village.  People are living in abject poverty and are literally starving to death.  There is one vendor with food, and he’s inflated his prices faster than a 3rd world country.  They can’t afford the prices and want him to give away the food for free.  The villagers ask you to interject so they can get their grub on, but he says he’ll leave the village if he has to give it away, and then there won’t be any food at all.  You can just tell them “screw you guys, I’m going home”, but it’s more fun to work it out, right?

When I came across this, I called Goldfish and said “holy crap – it’s the prisoner’s dilemma and the macroeconomic theories of government argument wrapped up in one!”  And he said “whaaaaa? it’s 5 in the morning.”

What do you do in this situation?  You can’t do what TortillaZorro does in real life – let them die and then skull fuck their rotting carcasses.  The game presents options, but not that one.  I think.

Do you go commie red?  Appropriate (nationalize) his food, feed the people in the short run and ensure starvation in the long run because you’ve failed to recognize that liberty and capitalism go hand-in-hand?  Do you go Ron Paul libertarian and say “that’s what the market will bear, homeslice”, and watch some of them starve in the short run?  As economists say, in the long run, we are all dead.  Besides, he’ll bring some of his prices down eventually, otherwise there won’t be a market.  The market will correct itself, after some people die.

Of course there is a middle way and that is to mediate a fixed price structure where neither side likes it, but they can both live with it.  Get it?  ”Live” with it?  Never mind.  I took this Keynesian approach.  If the masses gave me lip, I would have left them to try to deal with it on their own (and die).  If the vendor gave me lip, I would have kilt his ass with my bastard sword and taken all his shit that wasn’t food, and sold said “shit” for gold to buy me some more phat lewt.  Wisely for both sides, they agreed to my  deal.

Now, there wasn’t a dialogue option that said “Keynesian approach”.  It took several minutes of conversation to get to that point, and I wasn’t sure it was going to be there.  After I solved that problem, I was very proud of myself, so I went and fucked up some darkspawn (bad guys) and took money off their corpses.

That’s a good ass game.

Whenever I need my dog, I call my dog. Thanks, dog.

And that was the easy dilemma.  Now I have this dwarf problem (small spoiler) where the absence of leadership has left a power vacuum and the infighting is preventing me from solving my problem, which involves world domination by a bigass dragon unless I can stop it.  I’ve spent an hour learning dwarven politics and still have no idea what to do.  If I accidentally get in a fight, I can probably handle it, but fights should be my choice, not some drunken dwarf’s.

I think Dragon Age might actually be rocket science.

The game is making me smarter, and it can make you smarter, too.  Not as smart as me – I got an 800 on my SAT for fuck’s sake (total), so good luck with that one.  But you can become a smarter you.  And kill bigass ogres and dragons and elves.

And oh yeah, one other reason you should get this game…

…ZOMG BOOBIES FTW!!!111101101

That’s my review.  Peace n blessings, peace n blessings.

Someone needs a haircut. It isn't the werewolves.

]]> http://infotechusa.wordpress.com/2009/12/01/game-of-strategy/ Tue, 01 Dec 2009 06:21:01 +0000 infotechusa http://infotechusa.wordpress.com/2009/12/01/game-of-strategy/

The Prisoner’s Dilemma.

Game theory is a branch of applied mathematics that is used in the social sciences, most notably in economics, as well as in biology, engineering, political science, international relations, computer science, and philosophy.
Game theory attempts to mathematically capture behavior in strategic situations, in which an individual’s success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another’s expense (zero sum games), it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, “game theory is a sort of umbrella or ‘unified field’ theory for the rational side of social science, where ’social’ is interpreted broadly, to include human as well as non-human players (computers, animals, plants)” (Aumann 1987).

Traditional applications of game theory attempt to find equilibrium in these games. In an equilibrium, each player of the game has adopted a strategy that they are unlikely to change. Many equilibrium concepts have been developed (most famously the Nash equilibrium) in an attempt to capture this idea. These equilibrium concepts are motivated differently depending on the field of application, although they often overlap or coincide. This methodology is not without criticism, and debates continue over the appropriateness of particular equilibrium concepts, the appropriateness of equilibria altogether, and the usefulness of mathematical models more generally.

Nash equilibrium

In game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium.

Prisoner’s dilemma: a study in conflict and cooperation.

The Prisoner’s Dilemma is the best-known game of strategy in social science (Dixit & Nalebuff, n.d.). This dilemma represents a common problem in achieving cooperation in any number of social settings. The dilemma “illustrates the tendency toward noncooperative behavior, despite general advantage from cooperation” (Lee & McKenzie, 2006, p.233). The Prisoner’s Dilemma classic game scenario as well as several related real world situations is presented below.

The prisoners’ dilemma is a well-known problem in game theory.

In a classical game, two people are apprehended as suspects for a major crime. They are separated from each other and interrogated. There are two options available to each of the two suspects. Each can either confess, thereby implicating the other, or keep silent. No matter what the other suspect does, each can improve his own position by confessing. If the other confesses, then one had better do the same to avoid the especially harsh sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the favorable treatment accorded a state’s witness by confessing. Thus, confession is the dominant strategy for each. But when both confess, the outcome is worse for both than when both keep silent (Dixit & Nalebuff). However, each prisoner chooses to defect even though both would be better off by cooperating, hence the dilemma. In the classic form of this game, no matter what the other player does, one player will always gain a greater payoff by playing defect. Since in any situation playing defect is more beneficial than cooperating, all players will play defect, all things being equal .However, it should be noted that multiple repetition of the game will lead to different results (“Prisoner’s Dilemma”, n.d.).

The Prisoner’s Dilemma has applications in business and economics.

Example 1

Suppose there are two firms, A and B, selling similar products. Each has to decide on a pricing strategy. Both firms are better off when they both charge a high price; each makes a profit of $10 million per month. However, if one firm cheats and sells its product for lower price, it wins a lot of customers from the competitor. Assume its profit rises to $12 million, and the competitor’s profit fall to $7 million. If both set low prices, the profit of each is 9 million. In this situation, the low price strategy is like the prisoner’s confession, and the high price strategy equals to keeping silent. If we call the low price strategy cheating, and the latter cooperation, then cheating is each firm’s dominant strategy. However, the result when both cheat is worse for each than if both firms were to cooperate (Dixit & Nalebuff, n.d.).

Example 2

Lee and McKenzie (2006) gave an example of a Prisoner’s Dilemma game with respect to the healthcare decisions we make. An employer typically buys insurance policies with low deductibles. This feature of insurance policy has encouraged excessive use of healthcare services. This, in turn, drives employee’s insurance premium up. As a result, some workers can not afford to have the insurance anymore. We are in a Prisoner’s Dilemma with respect to our healthcare decisions. Collectively, we would be better off if we all moderated the amount of health care services. But because of insurance and government subsidies, it is in the interest of each of us to ignore most of the cost when we choose how much healthcare to demand (Lee & McKenzie, 2006).

Example 3

An example of a real world situation we have been observing for a number of years is the use of performance-drugs in professional sports, particularly those that are forbidden by the organizations that regulate competitions. For example, the 2007 Tour de France was rocked by a series of doping scandals.

• Pre-race favorite Alexander Vinokourov (Kazakhstan) tested positive for blood doping after winning the Stage 13 .The incident led his  Astana Team  to quit the Tour after Stage 15.
• Cristian Moreni (Italy) tested positive for testosterone after Stage 11. When his positive test was announced after Stage 16, his entire  Cofidis (cycling team) team pulled out of the Tour. Moreni acknowledged his offense, choosing not to have his B sample tested. He was detained by French police, who searched the hotel rooms where the Cofidis team was to spend the evening after Stage 16.
• After the end of the Tour, it was revealed that Spanish rider Iban Mayo  tested positive for EPO late in the race. (“Doping in Sport”)

Doping is considered to be unethical by most international sports organizations and especially the International Olympic Committee “…because of the health threat of performance-enhancing drugs, the equality of opportunity of the athletes and the exemplary effect of “clean” (doping-free) sports in the public” (“Doping in Sport”). Moreover, there are disciplinary actions employed against athletes tested positively on the doping drugs usage. However, using drugs in professional sports continues because of the strong incentive. It is a classic Prisoner’s Dilemma (Scheiree n.d.). To illustrate, Schneier (2006) gives the following example:

Suppose there are two competing athletes: Alice and Bob. Both Alice and Bob have to individually decide if they are going to take drugs or not. Imagine Alice evaluating her two options: “If Bob doesn’t take any drugs,” she thinks, “then it will be in my best interest to take them. They will give me a performance edge against Bob. I have a better chance of winning. Similarly, if Bob takes drugs, it’s also in my interest to agree to take them. At least that way Bob won’t have an advantage over me. So even though I have no control over what Bob chooses to do, taking drugs gives me the better outcome, regardless of his action.” Unfortunately, Bob goes through exactly the same analysis.

As a result, both athletes cheat, taking performance-enhancing drugs and neither has the advantage over the other. If they could trust each other, they could abstain from taking the drugs and maintain the same non-advantage status. They both would be better off since they would escape any legal or physical danger. But competing athletes can’t trust each other, and everyone feels he has to dope in order to compete (Schneier, 2006).

As Lee and McKenzie (2006) have pointed out, “Overcoming Prisoner’s Dilemmas is a pervasive problem in the development of social and management policies” (p.41). Studying principles of the game theory and its application to business will assist managers in choosing the most effective business solutions.

References

Dixit, A. & Nalebuff, B. Prisoners’ dilemma. The Library of Economics and Liberty. Retrieved November 8, 2007 from http://www.econlib.org/Library/Enc/PrisonersDilemma.html

Doping in sport. Wikipedia. Retrieved November 7, 2007 from http://en.wikipedia.org/wiki/Doping_(sport)

Lee, D.R. & McKenzie, R. B. (2006). Microeconomics for MBAs. New York.

Cambridge University Press.

Prisoner’s dilemma. Wikipedia. Retrieved November 8, 2007 from http://en.wikipedia.org/wiki/Prisoner’s_dilemma

Schneier, B. (2006). Drugs: Sports’ Prisoner’s Dilemma. Retrieved November 8, 2007 from

http://www.wired.com/politics/security/commentary/securitymatters/2006/08/71566

Introduction

This has been a fascinating week for Australian sport. It started with Tiger Woods’ victory at the Australian Masters golf tournament and is ending with visceral debate about play, games, physical education and sport in Australian society. Although I have written two posts about the Independent Sport Panel’s Report I have been mindful of Todd Sieling’s manifesto for slow blogging. He suggests that slow blogging is “an affirmation that not all things worth reading are written quickly, and that many thoughts are best served after being fully baked and worded in an even temperament”.

Slow blogging is an art at a time when the immediacy of the Internet offers the opportunity for “daily outrages and ecstasies that fill nothing more than single moments in time, switching between banality, crushing heartbreak and end-of-the-world psychotic glee in the mere space between headlines”.

David Crawford’s Review of Australian Sport has offered remarkable opportunities for comments and responses. I have taken some time to read the Report and in this post I would like to explore some of what I consider to be the important issues raised. Before I do so I need to declare some interests.

Personal Interests, Private Troubles

I have had a lifelong interest in sport and physical education. I have played, taught and coached a variety of sports and have been fortunate to have been involved in international sport since 1980. I qualified as a teacher of physical education in 1975. My own pathway in sport has been enriched by a profound sense of the educational value of physical activity and a passionate, personal, intrinsic commitment to sport from a very early age. I completed my PhD (a sociological account of teaching physical education) in the late 1980s in England at a time when teachers were withdrawing from after school activity in state schools. I witnessed at first hand the break of the umbilical connection between teachers and pupils. I believe this had immense implications for the organisation of sport and the loss of an educational ethos in physical activity. From 1978 to the present I have had a profound interest in the social and cultural aspects of sport and for over a decade taught courses in sociology and cultural studies.

My academic life gave me access to the work of Norbert Elias through Eric Dunning’s sociological approaches to sport. Elsewhere in this blog I have explored themes of play and playfulness and these aspects were nourished in me by Ione and Peter Opie’s work as well as by Johan Huizinga and Roger Caillois. Some of the early sociologists of sport encouraged me to reflect on play, display and spectacle and I was particularly influenced by Gregory Stone, Allen Gutmann and Fred Inglis. Like any student in the 1970s and 1980s I had access to many of the writings of leading Marxist thinkers. I was fascinated by John Hoberman’s work too and much more recently by Andy Miah.

This passion for sport has infused much of my life. I am a product of sport providing a social inclusion opportunity and I hope I have not forgotten the importance that sport can play in life changing experience. Whilst at the University of York (1973) I completed what I believe to be one of the first undergraduate studies in Apartheid and Sport. This fascination with the power of sport as a form of expression continues today with my enchantment with the possibilities midnight basketball holds.

I came to Australia in 2002 to join the staff at the Australian Institute of Sport and have had remarkable access to elite sporting environments and cultures in Australia. My sport journey started standing behind the goals at Buckley Wanderers trying to save the heavy leather laced balls missed by the goalkeeper, through thirteen years of school physical education to working with the Welsh rugby team to coaching on river banks in Australia. Recently I became a member of the Board of Australian Canoeing.

I am hopeful that these private troubles (as C Wright Mills called them) have some bearing on the public issues raised by David Crawford’s report.

Public Issues

Just before I read David Crawford’s report I came across Nikolai Bohlke and Leigh Robinson’s (2009) paper Benchmarking of elite sport systems. I did not have access to the full paper but noted from the summary that their research “used semi-structured interviews and documentary analysis to investigate the elite sport services offered by two successful Scandinavian sports”. They found that “a number of the services that led to the success of the two investigated systems are strongly context dependent”. they propose that “benchmarking is only appropriate as a tool to further understanding of elite sport systems if it is approached as a way of learning, rather than copying”.

So as the Crawford Report was released I was thinking about within and between sport system comparisons and the kind of evidence (and time) one might need to understand a sporting culture. I liked in particular Nikolai and Leigh’s point about learning. I found Chapter 1.1 (Defining Our National Sports Vision) of Crawford particularly interesting in setting a context for me to read the report. I was drawn to some points made on page 8:

In all, we need to consider what we can afford to invest and how we appropriately balance this investment to support a broader definition of sporting success. This will mean more explicitly defining elite sporting success in the context of prioritising those sports which capture the country’s imagination and represent its spirit and culture. These are the sports where our performance on the national and world stage is important to our sense of success as a nation.

There should be debate about which sports carry the national ethos. Swimming, tennis, cricket, cycling, the football codes, netball, golf, hockey, basketball, surfing and surf lifesaving are among the most popular sports in Australia, a part of the national psyche. Many are team sports and are the sports we are introduced to as part of our earliest education and community involvement.

If more money is to be injected into the system then we must give serious consideration to where that money is spent. If we are truly interested in a preventative health agenda through sport, then much of it may be better spent on lifetime participants than almost all on a small group of elite athletes who will perform at that level for just a few years. (Emphasis is mine.)

These three small paragraphs are the essence of the debate for me and appear to have been a raw nerve for some people’s sense of the world whilst reaffirming others’ core values. I have tried to capture the range of responses to the Report in an earlier post (Engines Started …) This introductory section (1.1) led me to think about:

• 21st century approaches to fitness and health
• How a nation state defines priorities for the allocation of the public purse
• Whether funding is a right or a privilege
• Whether history is destiny
• The imperatives for ethical sponsorship
• The advantages of a common wealth approach to social capital

I have combined these into three themes: insatiability, connectedness and deference.

Insatiability

For some time I have been concerned that it is possible to have an insatiable appetite for funds to support elite sport. In fact my arrival in Australia in 2002 coincided with a major dilemma for the Australian sport system … how do you progress after a successful home Olympics that was the focus of enormous investment? I still wonder if 2000 was a justifiably proud high water mark for Australian Olympic endeavour. Thereafter we had to compete with the energy of new host nations and the growing presence of the United Kingdom with significant financial resources at its disposal. Australia shared its expertise with the United Kingdom post-Sydney Olympics and many other nations warmed to the Australian model of success. It seemed to me that the only way to compete with these nations was to assume all Olympics were home Olympics so that Australia could resource a small demographic with sufficient long-haul training and competition opportunities.

I believe the Crawford Report provides an opportunity to debate these issues in a transparent way. I think the Report makes a strong case for “a nationally agreed plan for sport which encompasses all relevant areas of government and engages all tiers of government” (Summary of Findings 2.1 point 6). What interests me in particular is the timescale is required to agree and operationalise a plan that impacts on our lived (rather than aspirational) experience of sport in Australia. The development of a national policy requires stability of political will. This is exactly the problem facing young scientists in the World Economic Forum … how do you develop an ecologically sound energy policy for 2030 when there will be multiple changes of government in that time scale?

Connectedness

I believe fervently in a sustainable sport system that is funded ethically and that has an educational vision. I believe that the essence of sustainability (as an alternative to insatiability) is the family and the local community. I live in a rural community near to Braidwood in New South Wales and am becoming more and more aware of how a community can include and support its members. Local communities have local heroes and these have enormous influence over behaviour.  Successful communities are connected and grounded.

I take another key message from the Crawford Report to be how Australia wide connections can be made. If we are to have a vision for a healthier Australia then it must start in the family and at school. Any policy must deal with rural and regional Australia as well as urban and metropolitan Australia. These issues were at the fore of the recent SEGRA Conference in Western Australia. I think there are very important messages in the Crawford report about capacity, educational policy, access and inclusiveness that should stimulate our discussions about connectedness.

There is enormous sense in having a national service for elite sport as there is for having a national approach to voluntary effort. I do believe that one of the major (unintended) consequences of resourcing full-time positions in sport has been for volunteers to think that paid staff can deal with all eventualities. This is a time, as Charles Leadbeater suggests, to think of working with one another and thinking of pebbles rather than boulders.

I think a connected system that has a scalable collaborative ethos can achieve remarkable outcomes. In a sustainable sport system it will be the aggregation of effort that makes optimum use of human and financial resources. This necessitates our whole sport system accepting that there is an alternative to zero sum models of sport success. This alternative goes beyond the social traps identified in the tragedy of the commons.

Deference

There are numerous descriptors for the behaviours of voracious individuals and groups. I believe the Crawford Report invites us to reflect on possessive individualism and to contemplate a non zero sum approach to the flourishing of the sport system. Robert Wright has written about non zero as the logic of human destiny. He shares insights into reciprocal altruism that resonate with ideas developed by Peter Singer.

This to me is the ultimate challenge in the Crawford Report and the Prisoner’s Dilemma for our sport system. What if we can transform all the energy we invest in sport to enable all Australians to flourish? What if we take this one step further and have a global approach to sport as an ethical domain in which activity flourishes and that our part in it is to contribute to sport as a form of mutual recognition. What if sport will be about the triumph of the human spirit and its continuation as a life choice possibility throughout the twenty first century when we will face much more important challenges than whether we win gold, silver or bronze. Some years ago, Bill Clinton observed that:

The more complex societies get and the more complex the networks of interdependence within and beyond community and national borders get, the more people are forced in their own interests to find non-zero-sum solutions. That is, win-win solutions instead of win-lose solutions…. Because we find as our interdependence increases that, on the whole, we do better when other people do better as well – so we have to find ways that we can all win, we have to accommodate each other.

Conclusion

I have really enjoyed the opportunity to reflect on David Crawford’s Report. Over the last few days an editorial comment from The Age has kept intruding in my thoughts.

Australians will celebrate any gold medal won in 2012, even if it is in a sport they never think of between Olympics and even if it is won by someone they have not previously heard of and might never hear of again. Nor can anyone begrudge individual athletes their success. But, as the report notes, the present system funds such success at the rate of $15 million per gold medal. The nation’s self-esteem is surely neither so low nor so brittle as to require this level of investment, and it is money that in some instances could be more wisely spent. A shift to funding high-participation sports at grassroots levels might not result in the same surge of collective euphoria every four years, but it would contribute in a more sustained fashion to national wellbeing. (My emphasis)

I am hopeful that the educational possibilities contained in the Report, the suggestions about using existing facilities more effectively, and the valuing of local heroes are celebrated and ultimately accepted by the Government. Late in the evening here in Mongarlowe I am wondering if we have found something in the Crawford Report rather than lost something.

The aggregation of our efforts in Australia is possible and I do believe it is our pathway to sustainability. We can be a non zero sum sport system if we have the collective courage and the political will.

Considering the Prisoner’s Dilemma in this chapter, provide your own insight on how sites such as eBay “work” for most participants of this popular online auction site. Do they really work? Or is there too much risk?

Personally, I love eBay and in terms of the Prisoner’s Dilemma discussed in chapter 8, I don’t think there is too much risk and I think it “works” just fine. I have bought many times off of the popular auction site and have never had a problem with any of the sellers. I actually sell my textbooks at half.com at the end of the semester and make a lot of more money than I would if I was selling back to the bookstore. And I think if things were to get out of hand, that eBay has a lot of security and assurance to its customer and would handle any situation involving a rogue seller of buyer quickly and efficiently.

Before I get to that question, just a few facts. The weapons used in the 911 terrorist attacks were three airplanes routinely used by airlines. Nineteen people hijacked those planes. Next, three of the terrorists, all three trained as pilots, crashed the planes. Two went into buildings, the third augured into the ground–thanks to heroic resistance by its passengers. The conspiracy behind this attack certainly needed planning, funding and coordination.

All right. The fact that some of the activities leading up to this attack took place in Afghanistan was incidental rather than necessary. Why do I say that? It strikes me that many, many other places were equally suitable for the preparation, many of them in the West, not just those in the East. Some kind of response to this event was appropriate. The rules of gaming, exemplified by the prisoner’s dilemma, suggest that an attack must be countered by an attack proportional to the first. Our response was appropriate but unsuccessful. We failed to apprehend either Osama bin Laden, the supposed mastermind behind the attack, or Mohammed Omar, the Taliban leader of Afghanistan under whose protection bin Laden operated. Bin Laden ran training and indoctrination camps.

Today, we are still engaged in a war in Afghanistan. It has been underway for eight years and a month. Our ostensible purpose is to deny Al Qaida a base of operations (training, indoctrination) for future attacks. In order to achieve this, we are engaged in something we call “nation building.” We could not catch the responsible agents. Therefore—as if that were logical—we want to transform a dirt-poor tribal society into a democracy in order to control the space that the two chief agents of the attack occupied. Does that make sense?

What is so unique to Afghanistan that we must deny it to a group of terrorists? In what did the training of these terrorists consist? Did they have to be taught how to board airplanes? Did they have to be taught to say: “Hands up—or you are dead meat?”

This absurd focus on places threatens to involve us in endless additional “nation building” programs. We are in Afghanistan now. We’ve been there for eight years. We’ve still not apprehended either bin Laden or Omar. They are said to be hiding in the border region with Pakistan. It now seems that we are about to extend our umbrella of oversight over that country too. Shall we next discover that Pakistan also needs a democratic government just like ours before we can be sure of it?

Amazingly absurd consequences flow from wealth and power when these are controlled by stupidity in a realm where money has so corrupted the media that it no longer functions as a mirror held up to reveal our ridiculous behavior. For that reason no one questions a phrase like “nation building.” It sounds good. But what it really means is the forcible restructuring of a society on the cheap. It assumes that mere structural arrangements, like a parliament, a judicial system, and elections can transform a tribal society into one where public opinion, consulted by pollsters, can produce the fear of God in the souls of politicians. When I learned yesterday that nearly 25 percent of all police recruits in Afghanistan desert after their training—and how little you hear about that sort of thing on CNN—I was confirmed in my very serious doubts about the quality of our leadership these days, right or left.

Does anyone believe this story?

The pilots told the National Transportation Safety Board that they missed their destination because they had taken out their personal laptops in the cockpit, a violation of airline policy, so the first officer, Richard I. Cole, could tutor the captain, Timothy B. Cheney, in a new scheduling system put in place by Delta Air Lines, which acquired Northwest last fall.

How is it that they could miss 90 minutes of radio calls from control towers and other pilots unless they were asleep? This is a classic case of the Prisoner’s Dilemma. Who is going to be the first one to rat the other out?

On Bilateral Monopolies: [...] Mary has the world’s only apple, worth fifty cents to her. John is the world’s only customer for the apple, worth a dollar to him. Mary has a monopoly on selling apples, John has a monopoly (technically, a monopsony, a buying monopoly) on buying apples. Economists describe such a situation as bilateral monopoly. What happens? Mary announces that her price is ninety cents, and if John will not pay it, she will eat the apple herself. If John believes her, he pays. Ninety cents for an apple he values at a dollar is not much of a deal but better than no apple. If, however, John announces that his maximum price is sixty cents and Mary believes him, the same logic holds. Mary accepts his price, and he gets most of the benefit from the trade. This is not a fixed-sum game. If John buys the apple from Mary, the sum of their gains is fifty cents, with the division determined by the price. If they fail to reach an agreement, the summed gain is zero. Each is using the threat of the zero outcome to try to force a fifty cent outcome as favorable to himself as possible. How successful each is depends in part on how convincingly he can commit himself, how well he can persuade the other that if he doesn’t get his way the deal will fall through. Every parent is familiar with a different example of the same game. A small child wants to get her way and will throw a tantrum if she doesn’t. The tantrum itself does her no good, since if she throws it you will refuse to do what she wants and send her to bed without dessert. But since the tantrum imposes substantial costs on you as well as on her, especially if it happens in the middle of your dinner party, it may be a sufficiently effective threat to get her at least part of what she wants. Prospective parents resolve never to give in to such threats and think they will succeed. They are wrong. You may have thought out the logic of bilateral monopoly better than your child, but she has hundreds of millions of years of evolution on her side, during which offspring who succeeded in making parents do what they want, and thus getting a larger share of parental resources devoted to them, were more likely to survive to pass on their genes to the next generation of offspring. Her commitment strategy is hardwired into her; if you call her bluff, you will frequently find that it is not a bluff. If you win more than half the games and only rarely end up with a bargaining breakdown and a tantrum, consider yourself lucky.

Herman Kahn, a writer who specialized in thinking and writing about unfashionable topics such as thermonuclear war, came up with yet another variant of the game: the Doomsday Machine. The idea was for the United States to bury lots of very dirty thermonuclear weapons under the Rocky Mountains, enough so that if they went off, their fallout would kill everyone on earth. The bombs would be attached to a fancy Geiger counter rigged to set them off if it sensed the fallout from a Russian nuclear attack. Once the Russians know we have a Doomsday Machine we are safe from attack and can safely scrap the rest of our nuclear arsenal. The idea provided the central plot device for the movie Doctor Strangelove. The Russians build a Doomsday Machine but imprudently postpone the announcement they are waiting for the premier’s birthday until just after an American Air Force officer has launched a unilateral nuclear attack on his own initiative. The mad scientist villain was presumably intended as a parody of Kahn. Kahn described a Doomsday Machine not because he thought we should build one but because he thought we already had. So had the Russians. Our nuclear arsenal and theirs were Doomsday Machines with human triggers. Once the Russians have attacked, retaliating does us no good just as, once you have finally told your daughter that she is going to bed, throwing a tantrum does her no good. But our military, knowing that the enemy has just killed most of their friends and relations, will retaliate anyway, and the knowledge that they will retaliate is a good reason for the Russians not to attack, just as the knowledge that your daughter will throw a tantrum is a good reason to let her stay up until the party is over. Fortunately, the real-world Doomsday Machines worked, with the result that neither was ever used.

For a final example, consider someone who is big, strong, and likes to get his own way. He adopts a policy of beating up anyone who does things he doesn’t like, such as paying attention to a girl he is dating or expressing insufficient deference to his views on baseball. He commits himself to that policy by persuading himself that only sissies let themselves get pushed around and that not doing what he wants counts as pushing him around. Beating someone up is costly; he might get hurt and he might end up in jail. But as long as everyone knows he is committed to that strategy, other people don’t cross him and he doesn’t have to beat them up. Think of the bully as a Doomsday Machine on an individual level. His strategy works as long as only one person is playing it. One day he sits down at a bar and starts discussing baseball with a stranger also big, strong, and committed to the same strategy. The stranger fails to show adequate deference to his opinions. When it is over, one of the two is lying dead on the floor, and the other is standing there with a broken beer bottle in his hand and a dazed expression on his face, wondering what happens next. The Doomsday Machine just went off. With only one bully the strategy is profitable: Other people do what you want and you never have to carry through on your commitment. With lots of bullies it is unprofitable: You frequently get into fights and soon end up either dead or in jail. As long as the number of bullies is low enough so that the gain of usually getting what you want is larger than the cost of occasionally having to pay for it, the strategy is profitable and the number of people adopting it increases. Equilibrium is reached when gain and loss just balance, making each of the alternative strategies, bully or pushover, equally attractive. The analysis becomes more complicated if we add additional strategies, but the logic of the situation remains the same.

This particular example of bilateral monopoly is relevant to one of the central disputes over criminal law in general and the death penalty in particular: Do penalties deter? One reason to think they might not is that the sort of crime I have just described, a barroom brawl ending in a killing more generally, a crime of passion seems to be an irrational act, one the perpetrator regrets as soon as it happens. How then can it be deterred by punishment? The economist’s answer is that the brawl was not chosen rationally but the strategy that led to it was. The higher the penalty for such acts, the less profitable the bully strategy. The result will be fewer bullies, fewer barroom brawls, and fewer “irrational” killings. How much deterrence that implies is an empirical question, but thinking through the logic of bilateral monopoly shows us why crimes of passion are not necessarily undeterrable. [...]

in Chapter 8, David D. Friedman, “Law’s Order: What Economics Has to Do With Law and Why it Matters“, Princeton University Press, Princeton, New Jersey, 2000.

Note – Further reading should include David D. Friedman’s “Price Theory and Hidden Order“. Also, a more extensive treatment could be found on “Game Theory and the Law“, by Douglas G. Baird, Robert H. Gertner and Randal C. Picker, Cambridge, Mass: Harvard University Press, 1994.

Surveys consistently rank the U.S. as the most individualist culture in the world. Our ideal man or woman is independent and self-reliant. Unlike collectivist cultures (Japan, China, Mexico, etc.) we give primacy to the individual over family, community or social class. 

For Americans coming of age in the middle of the 20th century, one Hollywood actor above all others embodied the virtues and bravado of rugged individualism — John Wayne. In John Wayne’s America: The Politics of Celebrity Garry Wills described Wayne (aka Marion Morrison) as our “American Adam — untrammeled, unspoiled, free to roam, breathing a larger air than the cramped men behind desks.” 

In business we are expected to be hyper-competitive. The rules of the game are win, win, win. George C. Scott in his title role as General George S. Patton said it best: “America hates a loser.” But is fierce, no-holds-barred competition the only way to win? Are there strategies that are more effective? How about cooperation?

Game theory — a mathematical theory of situations in which two or more players decide the best course of action — proves it’s not the self-interested, results-oriented, victory-obsessed player who triumphs. It’s the cooperative player.

A classic game theory scenario is The Prisoner’s Dilemma. “Two prisoners jointly charged with a crime are held apart, and each is given the option of confessing, or not confessing,” according to the Oxford Dictionary of Philosophy. “If neither confesses, the prosecutor will find a lesser charge, and each will serve two (2) years in jail. If each confesses, the prosecutor convicts them both, and they will serve six (6) years each. If prisoner A confesses and B does not, A is released and B serves ten (10) years. If B confesses and A does not, B is released and A serves ten (10) years.”

The best outcome would be for both prisoners not to confess. The prosecutor would then have to give them each two years in jail. But they would have to trust each other and cooperate, i.e., not confess. If neither trusted each other, they would both confess and get six years. And if prisoner A trusted prisoner B but B squealed, then prisoner A would get ten years. Likewise, if prisoner B trusted A but A squealed, then prisoner B would get 10 years.

Clearly, the game shows that a positive result (less time in jail) is not attained by pursuing your self-interests. Instead, it’s best achieved through cooperation. It’s not intuitive, but it is intriguing.

So the next time you think it’s wise to crush your opponent, think again. It might make sense to cooperate and get a bigger payoff.

Copyright © 2009 by Vince Reardon

In a series of posts this semester, I am blogging all (or almost all) the lecture topics for the two Philosophical Ethics classes I am teaching this semester. Each of these posts primarily explicates the reading or a theme that dominated class discussion in a way that should be accessible to novices (such as my students are). I also offer some degree of analysis of the ideas considered and then pose suggested discussion questions. These posts usually feature more speculation than argumentation from me as I try to stimulate your thinking rather than stake out my own positions. Some of my students are responding to these short discussion primers in a private forum through the university. I’ve told the students they are free to discuss the blog post versions of these discussion primers as well, so they might show up here. The text we are using and from which all citations are taken is Ethical Theory: classical and contemporary readings, edited by Louis Pojman. Wadsworth: California, 2007). This post explores Hobbes’ basic theory of human nature in the state of nature, how it leads to the social contract and to sovereign authority, and finally how all of these issues raise moral questions about the nature of just authority.

Thomas Hobbes conceives of the “state of nature” as the situation human beings would be in were there no social order.  In the “state of nature” there is no such thing as justice but rather there are only beings with the power to do whatever it takes to assure their own preservation.  In this situation of what Hobbes sees as “war of all against all” (bella contra omnes), the cardinal virtues for human beings are “force and fraud.”  Violence and deception are the most indispensable and approvable means at our disposal for our ends of self-preservation.

According to Hobbes we join society out of incentive.  It is practically infeasible for us to be at constant war with each other.  This is because both (1) war is risky, often even when we are the one(s) more powerful and more likely to be victorious, and (2) having each other’s cooperation is often useful for our own purposes.  While subjugating you and reducing you to being my slave might be optimally to my benefit if I can do it, it’s too difficult and risky to attempt this and if I fail I risk being in a worse off position than if I just make an arrangement by which we both contract to support one another of our own free wills.  While I lose the shot at having a slave and will have to do some less than maximally convenient things to accommodate your needs, desires, and freedoms, I am better off than were I to wind up either enslaved by you or otherwise losing your cooperation altogether.

It is out of these sorts of considerations (formalizable in terms of the prisoner’s dilemma as contemporary game theorists and then moral philosophers have discovered) that we can judge it rational for people to cooperate with each other rather than harm one another, even should we believe them to be only motivated by their own self-interest and nothing else.  When our consideration of our own self-interest has to take into account the actions of others which will be happening independently of our own actions and often in response to our actions, what is most in our self-interest comes to be what mutually coordinates our actions with those of the other agents which intersect with our own.

When we participate in society, we implicitly agree to a “social contract” by which we all agree to surrender our state of nature rights to injure, kill, rape, and plunder each other in favor of an implicit agreement to cooperate with each other and respect each other’s person and property.  We each mutually coordinate with each other to uphold the social contract because it serves our own self-interest, even though in particular cases we have to forego immediate self-interests.  When I discover you have left your room unattended with the door open, I realize that I could raid your room and take whatever I want that I can smuggle home without getting caught.  If I am a self-interested agent with no intrinsic interest in you, this option of robbing you is my primary interest.  But I forego this opportunity because of the social contract.  I do not want to live under with the risk of others doing the same to me so often that even with my chances to steal from you I wind up on the short end of the stick at the end of the day.  It’s better for me to try to accumulate what I can within the terms of our social contract which forbids all recourse to such personal abuse.

But what about the “free rider?”  What about someone who realizes that as long as everyone else is playing by the rules, he can break them with no harm to himself?  The free rider calculates that as long as everyone else is mutually coordinating their actions to cooperate with each other, society will not fall into chaos of war of all against all, the social order will hold up.  He can realizes he can benefit from the cooperation of others while scamming them without their knowledge and in this way both satisfy his primary self-interests and gain the benefits of others’ foregoing their rights to the same and cooperating.

Hobbes’ solution to the problem of the free rider is that we need a fearful, powerful sovereign authority which can severely punish the free riders when they are caught.  Hobbes’ ideal sovereign would have the power to do whatever it took to assure the stability and security of a people.  The sovereign would have the power to make an example of the free rider which sent a message to future free riders that the risks of getting caught violating the social contract far outweigh the benefits of doing so.  In this way the social contract, while rationally in everyone’s self-interest to maintain, is enforced and reinforced through fear which helps us stick to the mutual coordination which is ultimately to our rational, personal benefit in those moments of temptation when our immediate gain at the expense of the contract seems most appealing.

Hobbes argues that outside of society, in the state of nature, there is no such thing as justice.  There is no injustice in injuring, killing, raping, plundering, and otherwise violating each other before there is the law of a sovereign over a people which creates justice and injustice for them.  Hobbes thinks independent of the sovereign there can be moral counsel about what naturally leads to pleasure and away from pain, but without a sovereign there is no authority to command that as a matter of law anyone must do anything.  Laws depend on law-givers according to Hobbes and so independent of sovereigns who lay down laws there are no imperatives we must follow.  Unlike Kant later would he does not think of each rational agent as legislating a moral law for himself.

For Hobbes the right to give laws comes from the power to do so.  In the state of nature, we have the right to impose a law on anyone else to the extent that we can impose our will on them and get them to accept it.  In society, we surrender such rights against each other to the sovereign who now has the full power to impose laws.  And whatever the sovereign imposes as law is just as long as he is sovereign.  And by accepting his sovereignty and protection, we surrender our rights to determine how we are to be protected.

The sovereign’s task is to keep us safe and our society stable at all costs.  The only way the sovereign could lose authority is if the sovereign proves impotent at securing his people.  He cannot be deposed on grounds that his laws are unjust since there is no standard of justice prior to his acts of law giving.  There are no inviolable rights such as rights to free speech since it is up to the discretion of the sovereign whether certain speech might foment factions that could lead to civil war, for example, and the ultimate concern of the sovereign is the people’s security and preventing such consequences at any cost.  For Hobbes a people is free only insofar as it is not subjugated by a foreign invader, not insofar as the people may do whatever they choose.  It is at the sovereign’s discretion to judge that to protect you from being enslaved by a foreign authority, he must silence your freedom to say or think things that he judges might lead to that result.

There are difficult questions that arise from a consideration of Hobbes’ ideas.  Does might indeed make right or could there be means we have for deriving a standard of justice which would be true and morally binding even were society to disintegrate?  On what grounds might we derive and defend a standard of justice that was pre-social in such a way?  Is a natural or rational grounding of justice in some way necessary for us to challenge existing laws with moral authority?  Can we say with Augustine, Aquinas, Martin Luther King, Jr., and others that “an unjust law is not a law”—that laws can be judged by a moral test and be deemed morally not authoritative if they violate a true conscience that has properly determined what is truly moral and immoral?  Without such principles is there any moral authority that individuals oppressed by their own governments could have to appeal for changes?  From where might we derive such principles?  Would some other paradigm of morality and ethics be required altogether or can we defend such notions of a justice which supersedes that of sovereigns purely on voluntarist grounds (which argue that laws must be expressions of wills in commands)?

The same questions also return on the level of God?  Were there an all powerful rational personal being, would its will be morally authoritative over all other rational beings simply by virtue of its power?  Does moral authority ultimately stem from the powerful will’s ability to command and enforce its commands or from somewhere else?  And if from somewhere else, where else?

Finally, going back to the prisoner’s dilemma, do you think that cooperative actions done out of mutual coordination for the sake of one’s calculation of self-interests through cooperation are, properly speaking, moral ones? Or do you agree with Kant’s idea that if self-interest motivates an action it may not be called ideally moral, regardless of how good its consequences it might be and regardless of whether the action happens to be the same one which duty would prescribe the agent should perform.

Your Thoughts?

John Cassidy at The New Yorker has a post at his new blog, Rational Irrationality, defending his position from an article last week that the financial crisis was caused by individuals making completely rational decisions that, when aggregated at the collective level, turned out to be completely irrational. In the original article, Cassidy explains that the Prisoner’s Dilemma is at the root of the financial crisis, and he’s certainly right about that. Cassidy’s explanation of the basic dynamics of the Prisoner’s Dilemma and their application to business and finance is as good as you’ll find, so I’ll quote it in full here. (Note: Charles Prince was the Citigroup CEO when Citigroup got into the business of CDOs.)

Because financial markets consist of individuals who react to what others are doing, the theories of free-market economics are often less illuminating than the Prisoner’s Dilemma, an analysis of strategic behavior that game theorists associated with the RAND Corporation developed during the early nineteen-fifties. Much of the work done at RAND was initially applied to the logic of nuclear warfare, but it has proved extremely useful in understanding another explosion-prone arena: Wall Street.
Imagine that you and another armed man have been arrested and charged with jointly carrying out a robbery. The two of you are being held and questioned separately, with no means of communicating. You know that, if you both confess, each of you will get ten years in jail, whereas if you both deny the crime you will be charged only with the lesser offense of gun possession, which carries a sentence of just three years in jail. The best scenario for you is if you confess and your partner doesn’t: you’ll be rewarded for your betrayal by being released, and he’ll get a sentence of fifteen years. The worst scenario, accordingly, is if you keep quiet and he confesses.
What should you do? The optimal joint result would require the two of you to keep quiet, so that you both got a light sentence, amounting to a combined six years of jail time. Any other strategy means more collective jail time. But you know that you’re risking the maximum penalty if you keep quiet, because your partner could seize a chance for freedom and betray you. And you know that your partner is bound to be making the same calculation. Hence, the rational strategy, for both of you, is to confess, and serve ten years in jail. In the language of game theory, confessing is a “dominant strategy,” even though it leads to a disastrous outcome.
In a situation like this, what I do affects your welfare; what you do affects mine. The same applies in business…. If Merrill Lynch sets up a hedge fund to invest in collateralized debt obligations, or some other shiny new kind of security, Morgan Stanley will feel obliged to launch a similar fund to keep its wealthy clients from defecting. A hedge fund that eschews an overinflated sector can lag behind its rivals, and lose its major clients. So you can go bust by avoiding a bubble. As Charles Prince and others discovered, there’s no good way out of this dilemma. Attempts to act responsibly and achieve a coöperative solution cannot be sustained, because they leave you vulnerable to exploitation by others. If Citigroup had sat out the credit boom while its rivals made huge profits, Prince would probably have been out of a job earlier. The same goes for individual traders at Wall Street firms. If a trader has one bad quarter, perhaps because he refused to participate in a bubble, the results can be career-threatening.

Following the argument in this last paragraph, Cassidy argues that the situation should be dubbed “rational irrationality,” as the rational behaviors of individual traders or firms leads to irrationality at the collective level. In other words, what’s good for all these individuals ends up being bad for the collective of which they’re a part. In this case, that collective happens to include the rest of us, too.

As Cassidy notes in his follow-up blog post, Barry Ritzholtz disagrees that the individual behavior Cassidy describes is rational. Quoting Cassidy:

Ritholtz writes: “ ‘Rational Irrationality’ asks us to ignore the repercussions of our behaviors. We can rationalize short term gains at the expense of long term losses, because we need to obtain quarterly profits regardless. Apparently, when it bankrupts the company, only then with the benefit of hindsight can we see what went wrong. I am terribly sorry, but that is precisely the sort of thinking that led to the crisis in the first place. Making loans to people who cannot pay them back is not rational when its profitable—its NEVER rational.”

As I mentioned, Cassidy defends himself against Ritzholtz’s argument, and at the risk of having this post be overly long, I’d like to quote the defense at length.

From a macro point of view, Ritholtz is right. Directing capital to people or firms who can’t afford to service it amounts to misallocating resources, and it is a form of market failure. But from a micro point of view, things are very different. Most of the people issuing sub-prime loans were loan officers at mortgage lending firms, such as Ameriquest and New Century, who were paid on commission. Neither they nor their bosses had much interest in whether the borrowers could repay the loans, and for good reason. They were intending to sell them on to Wall Street firms for securitization. If the default rates turned out to be higher than expected, it was the purchasers of sub-prime securities that stood to lose out, not the loan originators.
Now, this was certainly myopic thinking, but it wasn’t irrational. During the good years, some of these brokers racked up seven-figure commissions and bonuses. (See, for example, the excellent account of subprime and Alt-A lending in “Chain of Blame,” by Paul Muolo and Mathew Padila.) To be sure, some (many) of them ended up losing their jobs when the bubble burst, but that doesn’t invalidate the point: pushing sub-prime mortgages onto folks that couldn’t afford them was a lucrative business, and the people who were involved in it it were simply reacting to the price signals that the market was providing to them.
Ritholtz focuses on the role of the Wall Street firms. He writes: “On a risk adjusted basis, the behaviors of Citi, Bear, Lehman, New Century and others was hardly rational. Call it whatever you want, but do not forget this simple fact: It was the sort of narrow, risk-ignoring thinking that is ALWAYS rewarded in the short term, and ALWAYS punished in the long term.”
Sadly, this isn’t true either. During a bubble, the risks are rarely evident. If they were evident, asset prices would adjust and the bubble would pop. From the point of view of a trader, or a CEO, the bigger risk is missing out on the easy money that is to be made. In such an environment, the rational thing to do is surf the bubble.

After reading through this argument, it becomes clear that, at root, Cassidy and Ritzholtz disagree about what the word “rational” means. It’s here that we should step back. Both Cassidy and Ritzholtz think that, for any individual, “rational” means whatever is in that individual’s interests. It’s just that they apply different time frames to the interest. Cassidy thinks that short-term interests often outweigh long-term interests because a person looking at the long term to determine his short-term actions may guarantee that he’s not around for the long term. Ritzholtz, on the other hand, thinks that long-term interests can be seen, at least if one has a sense of history, and must be taken into account in the short term. Hence they disagree about what’s “rational”.

I’d like to suggest that they’re both missing part of the picture. They both assume that to declare something “rational” is to declare it morally good. Because something is rational, however, does not mean it is good. To determine whether a practice — selling CDOs, say — is good, I must have a set of criteria about what constitutes goodness. I may then use rational thought to determine whether a particular practice meets those criteria. But if the criteria are flawed, the practice may be rational — i.e. it may follow logically from or be consistent with the criteria — but it will not be good.

Rather than stretch your post-length tolerance any further, I’ll turn to this point in my next post. If you’d like a hint of what’s to come, you might like to read this op-ed from David Brooks at The New York Times earlier this week.

A fascinating brief video applying the prisoner’s dilemma to a famous business situation.

Your Thoughts?

Hobbes argument for the state of nature goes likes this.

P1. Humans are a certain way (suspicious, rapacious, etc. etc.)

P2. If humans are a certain way, then the state of nature will be awful.

Therefore:  the state of nature will be awful.

Does this argument succeed?

Now, many think Hobbes claims that the state of nature will involve constant violence, but his real point is about cooperation. Surely there will be violence in the state of nature, but what is supposed to be really awful about it is that there is no way to guarantee the stability of cooperation. Some people make this point with a standard prisoner’s dilemma type argument. If there is no government over us, then we won’t cooperate, because if you try to cooperate with me, I will just  run off with your stuff (pretend we have a contract dictating a quid pro quo, but I don’t deliver the quo but run off with the quid), or worse: kill you and take your stuff.  So in sum, the state of nature involves some violence but a lot of noncooperation, making everyone really poor since they have to do everything themself.

Now, one of Hobbes assumptions about the human race (part of P1 above) is that we are all mostly equal in power and intelligence, but I think his argument goes wrong whether this is true or not.

First assume Hobbes is right. If we are all roughly equal in power, it seems that there won’t really be any violence at all in the state of nature. After all, with no cooperation, everyone doesn’t really have a lot to steal, and so by coming to kill you, I would be exposing myself to a roughly equal opponent for very little gain. Better to just stay in my hovel and try to keep the fire burning. So, if we are roughly equal, then the state of nature won’t really be that scary (I won’t fear a nasty death at the hand’s of some vegabond), but things will still be bad, cause I’ll be really poor.

But really, Hobbes is wrong. People are not equal in strength or intelligence. For example, the very young and very old would make easy targets, not to mention young men who happened to be weak or clumsy. If there are differences in power, there would probably be a lot of violence. Biff the bully could take Poindexter’s corn every year (these days, Biff’s ancestors take Poindexter’s lunch money every day) without much risk to himself. But notice that as the calculus swings in favor of violence, the incentive to cooperate increases as well. If Poindexter and Eggbert are routinely taken advantage of by Biff, then they might team up. Neither has an incentive to double cross the other, because without cooperation, they both lose out due to Biff’s superior strength. So, they can count on one another.

Now, if Poindexter and Eggbert (and maybe Norville, Gilbert, and Ned too after a while) cooperate successfully, what is to make this endeavor sustainable? After Biff the bully gives up (or maybe gets killed by their makeshift militia), the payoffs change again, and each one could do better by pretending to cooperate and then making off with a bunch of the group’s hard work.

One answer might be sociological: the group might have learned to trust each other and maybe even develop a camaraderie. Another explanation might be an incentive based on. Stealing from the community would impact everyone, the malefactor could expect reprisals. Remember, in the one on one case, if we are of equal strength, then it’s not worth it for me to come after you if you double cross me; I’m just as likely as not to win in a fight. But Eggbert probably stands little chance of standing up to Poindexter, Ned, Gilbert, and Norville. c

Having observed the anniversary of the terrorist attacks on Wall Street last week, it is time to focus on the other “unimaginable” Wall Street event, the one that occurred last September.  Media attention has shed light on the anniversary of the Lehman Brothers bankruptcy, and the President gave an obligatory “get tough talk.”  But, in the words of Clara Peller and Walter Mondale, “Where’s the beef?”

 I still say that President Obama could have come out of the stimulus debacle strong if he had held the partisans from the left in check.  Regardless, he has spent so many political chips on healthcare, the populist moment to reform Wall Street and corporate behavior generally seems to have slipped away.

So why worry? 

If we can’t stand the road we’re on why do we refuse to change our behavior?  What’s going to change in the next 10 to 20 years if we don’t adjust our thinking?  Relying on free markets to stay in equilibrium has been a sucker’s bet.  (In fact they do “return to equilibrium,” but sometimes the process takes years or even decades, and more often than not creates unintended negative results.)  I don’t begrudge people the opportunity to make money, but we need to learn from our mistakes.  We must redefine the invisible hand.  Our mantra ought to be “Trust…but verify.”

Adam Smith’s The Wealth of Nations was a work of genius.  I have revered it all my life.  In it he was the first to suggest one could pursue their own self-interest and it would align with the greater social good as if by an invisible hand.  In the sage’s own words:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.”

Those words were revolutionary in 1776.  However, the statement assumes the participants are all socially responsible people.  Smith’s masterpiece went on to describe the benefits of the division of specialized labor, but all this was written before the industrial revolution.  It is fair to say that communities operated in a much more local and cohesive way back then, particularly in the United States.

Given our modern complex world it would be much more accurate to say it is in the butcher, brewer, and baker’s best long-term self-interest to provide a safe, efficient, healthy, and tasty dinner.  This is undeniably true; unfortunately, people don’t always behave this way. 

In the short-term, depending on many factors, they might feel they can get away with, perhaps compelled or even justified to use inferior ingredients, cut-corners, and possibly even risk public health.  The most obvious example of this is Upton Sinclair’s 1906 expose of the American meat packing business.  More modern examples can be found with the recent Chinese pet and baby food scandals.

Business has always bristled at any kind of regulation, but it is in business’s long-term best interest to submit to some kind of regulatory authority to curb individual excesses.  Regulations formulated to curb the excesses of the Gilded Age actually stabilized and strengthened markets.  Would you feel more or less safe if we did away with the Food and Drug Administration?  The Nuclear Regulatory Commission?

So how do we redefine the invisible hand so as not to destroy it, but to bring it in line with real world experience?  Game theory and the model known as “the prisoner’s dilemma” provide an answer.  When the prisoner’s dilemma was introduced in 1950 the military immediately took notice, incorporating it into their strategic plans.  In the mid-eighties, theorists worked out strategies that seemed to indicate that cooperation tended to beat cheaters in iterated or repeated games.  At this point, the prisoner’s dilemma caught the attention of evolutionary scientists who had been looking for a way to explain why natural systems and individuals tend to cooperate (and why altruistic behavior exists at all). 

Prisoner’s dilemma explains why someone would forgo a bigger payoff, if cooperation (settling for a smaller payoff) benefits all players.  Imagine warring tribes, the successful leader knows that sharing the loot with his warriors insures their devotion.  The restaurateur knows if he gets caught serving cat meat to his customers he’ll lose their business.  So two conditions must exist for the invisible hand to work:  the game needs to be repeated; and, everyone needs to hold the same information.  In blind, single-shot games, most all players will go for the big payday.  If the tribal chief can jump a plane for Switzerland, he’s more likely to take the money and run.  If the restaurant’s customers don’t know they’re eating cat meat, and a cheap reliable supply exists, the owner is tempted to slip it onto the menu.

So, no surprise, risks and payoffs affect behavior economic behavior.  If payoffs are significantly high, or the chance of getting caught is significantly low, then the urge to defect (cheat) goes way up.  Now, ask yourself, what kind of system have we devised over the last 25 years?  According to the New York Times, bankers have an inside joke:  they often use the term I.B.G., which literally means “I’ll be gone” (with my huge bonus when things go bad is implied).  Doesn’t this explain Lehman, AIG and Enron?

I plan on returning to game theory and the prisoner’s dilemma on this blog; because I think understanding it is key to designing an enlightened regulatory structure.  It is so important that the regulators are people who understand and appreciate business.  Too often the left takes American business and its ultimate success for granted.  

Finally, this is not just a case of ensuring financial wrong doers are held responsible for past sins.  Our economy is suffering from nearly 30 years of over consumption and accumulated debt.  Even if we can find a way to return to a consumption-fueled boom (which I doubt), the fact is that it will be soft and short-lived.  To change our economic outlook we must fix the engine and the body.  That is to say we must deal with the source of the debt problem as well as the debt problem itself.  Ultimately, the sooner we get the job done, the less agony we’ll feel.

To see an excellent article on over-consumption and the shear size of the resulting debt problem go to Charting the Economy or click on the link below:

http://chartingtheeconomy.com/?page_id=56

A classic problem in what is known as game theory is known as the prisoner’s dilemma. It is deceptively simple: two players, whom we may think of as prisoners are trying to curry favor with their common jailer, and secure the most desirable circumstances for themselves that they can. They can either play by the rules or they can cheat. If either prisoner cheats, there is a possibility that the other prisoner will go to the jailer and tell him what the other is doing. If one prisoner chooses to cheat, and the other prisoner turns him in, that prisoner may garner more favor with the jailer than he would if both prisoners were honest. Let’s try to be a little precise, and focus only on the relevant details. We have a “game” involving two players, and the players make “moves” either simultaneously, or at least independently (not knowing what move the other player makes). After each round (that is, after each player has made his move), points are awarded as follows: if both players cooperate, each is awarded 3 points; if one player defects and the other cooperates, the defecting player is awarded 5 points, and the cooperating player 0 points; finally, if both players defect, both players are awarded 1 point.

So, the prisoner’s dilemma is whether or not to defect (cheat). There is a potential payoff of 5 points, rather than 3, so this is an attractive option (at least to the amoral!) but there is a downside. If both players defect then each will only be awarded 1 point, as opposed to the 5 points he hoped to earn. Being honest and cooperating is risky, too. If a player chooses to cooperate, and the other player defects, no points at all are awarded and, to add insult to injury, the other player will be awarded 5 points!

Now, I imagine it is not difficult for you to think of real life situations similar to the prisoner’s dilemma. Game theory has traditionally been an important tool in economics, where it was introduced by John Nash (yes, the John Nash profiled in the movie (A Beautiful Mind). Nash did not invent game theory, but he made important contributions to the field, and pioneered its application to mathematics. As I write this, I am waiting for President Obama to deliver his speech to the joint session of congress on healthcare. We are in the middle of a “debate” over healthcare reform legislation (my use of quotes is intentional), and this debate can be modeled as a game. Indeed any debate can.

In the debate over healthcare reform, either party may act in good faith, trying to argue the issues on the merits, or they can “cheat” by attempting to distract, monopolize the discussion, throw out innuendo or out and out accusations directed toward the other side. We’ve seen that the potential rewards of such a strategy are high, as long as the other party does not follow suit. But if both parties resort to this type of strategy (both parties defect), the payoff will be minimal. Americans will feel disenfranchised and will not support either party.

Now, the prisoner’s dilemma has been extensively, and the best strategy seems to be tit for tat. This strategy is simply to remain honest, but if the other player defects, then respond in kind. This is a depressing thought for anyone who believes in the value of civil debate and in acting in good faith. In order to make the game more realistic, we should perhaps add another element: In order to be able to continue playing, each player needs to be able to earn, on average, 2 points (or maybe 1.5) points per round. There will be fluctuations over time, but if the player cannot sustain a rate of 1.5 points per round, he eventually “loses” and has to exit the game. Now, congress is something like this. There is a certain amount of work that needs to be done, and perpetual partisan gridlock is not sustainable.

To convict criminals, you need evidence. Sometimes, the evidence comes in the form of testimonies or information from suspects themselves.

When this happens, one may see a case of ‘Prisoner’s dilemma’.

In its classical form, the prisoner’s dilemma (“PD”) is presented as follows:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies (defects from the other) for the prosecution against the other and the other remains silent (cooperates with the other), the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

- wikipedia.org

Here’s how prisoner’s dilemma may work out, brilliantly exemplified by British gameshow, ‘Golden Balls’:

Question:

How might the prisoner’s dilemma affect the fairness of punishments meted out by our criminal justice system?

The Afghan culture of honor and tribal fealty is a double-edged sword that runs through American policy progress and political developments for an ‘honorable exit’ within the decade.  On the one hand, the culture and politics of honor and fealty have solved, to a great degree, the collective action problems that run rampant in a country like Afghanistan.  On the hand, honor and fealty might soon deliver a death knell to the possibility of having a unity government that might address the political and security issues of all Afghanistanis.

Consider that it was only with the help of the politics of tribal identity that NATO– with American military and development assistance–  partially solved the collective action problems that came along with voting during the recent elections.  Tribal leaders promised to deliver every vote from their local tribe to one or the other major candidates; tribal fealty commited each individual within that tribe to vote  for a candidate by fiat.

Now this tribal allegiance, which might work well for pragmatic policy concerns, is the very issue that seems to be cutting through the contest between Hamid Karzai and Abdullah Abdullah, exposing the deep divide between tribes and ethnicity in Afghanistan.  One exception to politics as usual, has gone far to prove the rule about politics and ethnic clientelism in Afghanistan.  It seems that there exists strong evidence that Karzai’s cronies stuffed ballot boxes in an area of Kandahar that was promised to Dr. Abdullah.

Contrary to other writers, I’d argue that the contravening factor in this new turn towards ethnic politics in Afghanistan, pitting Tajiks against Pashtuns, is not salient political issues that cleave through ethnicity, per se.   Rather, the poison tipped edge of the swinging double edged sword of honor and fealty is at work.   The culture and politics of honor and fealty to the tribe forces minor  individual level grievances and infractions to become rapidly deteriorating turf wars that essentially resemble a society-wide game of prisoner’s dilemma.  An assault to one individual in a tribe morphs into the assault on the honor of one individual within a tribe.  Hence, according to Afghan custom, the honor of the whole tribe at large comes under assault.  In this situation, it is better to retaliate against dishonor than to 1) be dishonored again 2) to cooperate inspite of the dishonoring act.  Therefore each tribe retaliates against the tribe that it accuses of having dishonored it.  However, at a macro-level, the cumulative sum of such acts and retaliatory acts reduces societal and social welfare for all Afghanis’ creating the conditions where the U.S remains trapped in a country enveloped in a Hobbesian state of nature.

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Primary version of this post, with visual content, at Barry Stocker’s Weblog.

‘Anarchy, Socialism and a Darwinian Left’, Ellen Clarke. An article Clarke originally published in 2006, now freely available.

Hat tip. PhilPapers (New papers)

I’ve linked to this largely because of the surprisingly large number of people who are not aware that Anarchism refers to a tradition in political theory, not a descent in chaos. The point of Anarchist theory is to show who rule governed societies can emerge without coercion on a purely voluntary basis. I’m not advocating this point of view, but I am startled by sometimes encountering people who work in political theory and appear to be unaware of this position. Clarke refers to Left Anarchism, but there are many varieties of Anarchism: capitalist and socialist; conservative and progressive, revolutionary and evolutionary; and many other gradations.

The real merit of Clarke’s paper is to discuss the possibility of Left Anarchism, through game theory, in reaction to Peter Singer who uses ideas of game theory and co-operation to arrive at a more statist kind of leftism. Clarke’s comment on Anarchist ideology and its history are less detailed. Her main examples of Anarchist thought are Bakunin and Kropotkin, but she does not notes the differences between them. Kropotkin seems the most relevant to her case, since he was a biologist concerned with evolution. His vision was of anarcho-communism, while Bakunin advocated a society where economic property is taken over by workers’ collectives, but is not completely communistic in its attitude to private property. Kropotkin seems the most relevant to what Clarke argues, since he did write on Darwinism and the role of co-operation in evolution in his political theory.

Clarke’s argument focuses on the use of the ‘prisoners’ dilemma’ in theories of social choice and politics. For a full and expert explanation of the ‘Prisoner’s Dilemma’ in philosophy, go to Steven Kuhn’s entry in the Stanford Encyclopedia of Philosophy.

Briefly, this refers to two prisoners in isolation from each other. Various formulations exist, but they have the pattern that the best outcome for each prisoner is to co-operate with the police if the other does not, since the co-operator goes free and the non-co-operator gets a long sentence. If both act the same way, the best outcome is if both refuse to co-operate which is a better outcome for both than if they both co-operate. The dilemma for the prisoners’ is whether they can trust the other prisoner not to co-operate with the police and so have a reason to not co-operate with the police as well. The prisoners have an incentive to co-operate with each other, but if one behaves co-operatively to the other and the other does not, the latter prisoner benefits. This expresses a social and political dilemma that as individuals we do best if we exploit other people’s trust, but the average benefit of all individuals in society benefits if there is trust. The kind of game theory that looks at the dilemma, suggests that over time rational actors will build up reciprocity and trust, and will co-operate after a sufficient number of repeated experiences which show that trust and co-operation beat distrust and betrayal.

Clarke is concerned with this as an evolutionary survival strategy of humans, arguing that rationality and times lead us to co-operate without a coercive agent to make us obey co-operative rules, such as the state. However, there are more people who take the position that Clarke refers to ‘Axelrodian co-operation’ in which a coercive agent is necessary for co-operation to trust to get established. I’m inclined to agree with the latter position, though in a lore mitigated fashion than the left-statism that Clarke is arguing against. The reason, I would limit the role of the state more than most social democrats and conservative is that I would argue the achievement structural order for society as a whole, is to allow voluntary co-operation to flourish through the market, and all other forms of voluntary association.

The important thing here is that anarchy is not just a name for collapse. In political theory, it refers to a rich and varied tradition according to which there can be an evolving order without the state.

This afternoon MarketWatch published an article I wrote that applies the classic game theory problem of ”The Prisoners’ Dilemma” to Wall Street’s bonus culture.  Read the article here.

At Salon’s How the World Works, Andrew Leonard writes about the high rates of mortgage delinquency and foreclosure in the US, which are reaching historically unprecedented levels. To explain this, Leonard looks back a few years to when the housing crisis first broke in the US.

From the moment politicians began proposing measures to ameliorate the impact of the housing bust on the U.S. economy and individual Americans, critics responded with a strong dose of moral outrage. Why should speculators, flippers, and deadbeat “losers” get help from the government? They screwed up, and they should pay the price. Let them drown in their own option-ARM bile!

(ARM would be adjustable-rate mortgage. Here is Wikipedia’s explanation, for what it’s worth.)

These critics that Leonard summarizes make the seemingly straightforward point that people should have to deal with the consequences of their mistakes. This attitude would seem to be in line with notions of justice. As Baha’u'llah writes in the Lawh-i-Maqsud,

Justice hath a mighty force at its command. It is none other than reward and punishment for the deeds of men. By the power of this force the tabernacle of order is established throughout the world, causing the wicked to restrain their natures for fear of punishment.

So, in order to have justice, we must punish the wicked and reward the good. Justice thus established also trains and gives life to the world and provides the foundation of its stability and order. Baha’u'llah notes in the same tablet:

The structure of world stability and order hath been reared upon, and will continue to be sustained by, the twin pillars of reward and punishment.

and in the eighth of the Ishraqat:

That which traineth the world is Justice, for it is upheld by two pillars, reward and punishment. These two pillars are the sources of life to the world.

So, the critics that Leonard cites seem to align with Baha’u'llah’s call to justice.

As Leonard notes, though, what seems a matter of justice is not so straightforward in it consequences. Punishing those people who acted badly (or at least unwisely) by letting them fail in their mortgages has larger consequences for the economy. Leonard again:

The sensible response to this blast of anger was to observe that society as a whole would pay a cost for mistakes made by the imprudent, and like it or not, for the benefit of the general public, we need to do what we can to cushion the impact inflicted on all of us by the irresponsible.

Without saying it explicitly, Leonard notes that the structure of this problem is very similar to that of a multi-party prisoner’s dilemma, in which the bad actions of a few affect many beyond them, even those who have acted responsibly. (Unfortunately, the wikipedia article doesn’t have much on the multi-party version. This page explains it reasonably well. If you want more depth, look to Thomas Schelling, who showed up in the Freakonomics blog here.)

When we see borrowers begin to fall behind on prime fixed-rate 30-year-mortgages because of job loss or other recession-fallout, it’s not so easy to self-satisfyingly blame them for their own predicament. They are collateral damage, and as they lose their homes, further depressing home prices and crimping economic growth, the gyre continues to widen. If there’s any lesson from this mess, it’s that more aggressive government help is necessary when the economy gets hit by a falling anvil.

Because of the dynamic in which irresponsible actions affect even those who have acted responsibly, Leonard advocates government intervention, even if it aids the irresponsible actors. Surely the just should not suffer the punishment of the unjust. To put it in terms of game theory, Leonard wants an outside power to tilt the rules of the game in favor of not hurting cooperators. That seems reasonable, too, falling within the ambit of both justice and wisdom, a balance which Baha’u'llah also extols:

Take heed, O concourse of the rulers of the world! There is no force on earth that can equal in its conquering power the force of justice and wisdom. I, verily, affirm that there is not, and hath never been, a host more mighty than that of justice and wisdom. Blessed is the king who marcheth with the ensign of wisdom unfurled before him, and the battalions of justice massed in his rear.

So for regulators, Leonard’s advice is well-grounded. At a more fundamental level, though, the people of the earth need to be alive to the dynamics of collective action as embedded in the multi-party prisoner’s dilemma because so many of our current global problems, from the financial crisis to climate change, manifest that basic structure.

At the level of the individual, we need to begin to heed Baha’u'llah’s call in the Hidden Words, Persian, #5:

O SON OF DUST! Verily I say unto thee: Of all men the most negligent is he that disputeth idly and seeketh to advance himself over his brother. Say, O brethren! Let deeds, not words, be your adorning.

My beautiful wife is quite the bargain hunter—she excels at finding the lowest cost source of anything on the Internet.  So we were thrilled the other day when she found fares from DC to LA over the coming Thanksgiving holiday weekend that were about $100 per seat less than the next lowest airline.  She quickly booked the tickets and learned, only at the very end of the reservations process, that this particular airline (AirTran) charges $6 extra per person per segment in order to reserve a seat.  Suddenly, our family of five was paying $60 above the advertised price just for the privilege of sitting in seats 14A-E on each flight.

We all know how crowded Thanksgiving flights can get.  So we had a good chuckle at the thought of what would happen if everyone travelling on AirTran that day refused to pay this $6 per seat extortion.  It is in the airline’s best interest that everyone have an assigned seat so that boarding the airplane will be more orderly (Southwest Airlines is the exception that proves this rule).  If all of the passengers refused to pay extra for the privilege of choosing their own seat, AirTran would have to do it for them and at a cost. 

So, how is AirTran able to get its passengers to pay to reserve a seat while the passengers have an incentive not to pay?  Because each individual passenger faces what in economics is known as a classic Prisoners’ Dilemma.  The Prisoners’ Dilemma is an example of a problem from game theory in which two (or more) players, unable to cooperate, each individually making rational, profit or utility­–maximizing choices, realize a worse outcome than they would have achieved had cooperation been permitted.  The standard example is of two prisoners who would suffer only a small penalty if they would each keep their mouths shut.  But, because of some promised benefit of confessing if they are the only one confessing, both confess and doom themselves to a harsher penalty than if they had kept quiet.

In the AirTran example, the passengers would all be better off if they could agree to not pay the reserved seat fee.  However, each individual also has an incentive that is contrary to the best interest of the group.  The first passenger to go against the group and pay the reserved seat fee gets choice seats.  Further, no one wants to be the only passenger not to have reserved seats—that could get you stuck in a middle seat, or worse!  Consequently, everyone (or at least everyone who cares) pays the reserved seat fee.

The payoff matrix below gives a visual example of a typical two-player Prisoners’ Dilemma-style game and the payoffs earned by each player.  In the game, two travelers who do not know each other and are unable to communicate are separately asked to pay a fee for a reserved seat.  If both travelers choose “Don’t Pay” the airline assigns them seats at the airport for which the traveler derives no extra benefit but also incurs no extra cost (net value = 0).  If one traveler “Pays” while the other does not, the paying passenger is rewarded with a good seat (value = +8) but must pay $6 for it (net value = +2).  Meanwhile, the non-paying passenger is stuck with a crummy seat next to the lavatory (net value = -10).  If both choose to “Pay” then both pay $6 and are randomly assigned a seat (net value = -6). 

In this setup, each traveler will strictly prefer to pay the reservation fee no matter what the other traveler chooses.  Consequently, both will choose to pay the fee even though each would be better off if neither paid it.  

Notice, however, that this outcome depends crucially upon the set up of the game.  If we were to change the values the travelers place on each choice, allow the travelers to communicate, or change the number of times the two travelers come across each other in the same situation, the results of the game may change dramatically.  Under certain circumstances (for example, allowing the game to be repeated but not allowing the players to know when it will end), it is possible to have an outcome where neither traveler ever pays the seat reservation fee.

For an expert witness, game theory models like the Prisoner’s Dilemma may be very useful for describing how people might behave in simplified versions of real-world settings.  However, the assumptions made about the game’s set up must closely fit the facts in evidence for a game theory model to have any value or credibility.  The game in my matrix is very similar to my actual experience with AirTran.  Yet, I’ve made an assumption about the value that travelers will place on a “good” seat.  If instead, some travelers don’t consider any seat to be “good”, then the net value of “Paying” when other travelers “Don’t Pay” may be very different, possibly even negative.  This would make the outcome of the game opposite of the outcome the resulted from my assumption.  Making assumptions that are supported by facts is the only way to avoid the perception that your assumptions drive the results.

Meanwhile, we sucked it up and paid AirTran the $60 to have reserved seats.  I’m not happy about it.  Still, I figure that it beats showing up at the airport with three young kids the day before Thanksgiving and having us all spread around the plane in various middle seats.  But wait!  That’s a different payoff matrix…