Game Theory of The Fiscal Cliff

Now that we are all more acquainted to the idea of a game theory, it is easier to see how it is easily applied to many areas of society including politics. The first thing one learns when studying politics is that actors are self-interested therefore; their actions always have an undercover purpose of favor them or their party. Consequently, the Fiscal cliff is not an exception to the rule when it comes to self-interest of political actors.

In the article Psychology of the Fiscal Cliff the author Prof. Ian Robertson goes on to compare the behavior of both democrats with the behavior of the republicans and relate the same to the Prisoner’s Dilemma game. In the article the author says that the best strategy would be to get ones opponent trust and create a reputation based upon that. Yet, in the case of Republicans and Democrats there is a long history of opposition and mistrust.

Then, in the case of the Fiscal Cliff the author points out:

“The fiscal cliff is a sort of prisoner’s dilemma. Each player appears fixated on trying to rat to the electorate about the guilt of the other for the impending disaster. In the chaos following a fall down the cliff, the president and the Republicans each hope that they will escape with a light electoral sentence while the other is sent down for life.”

 However, in class we discussed that the best strategy is the one that is the dominant strategy regardless of “self-interest”; in politics it is not the case. The actors in seeking their self-interest put at stake the nation’s well being.

One of the reasons why the Prisoner’s dilemma could not be adequately applied, in my opinion, is because the players have background knowledge of one another which harms the decision-making of the other player.

Due to the history of both President Barack Obama and opponent Mitt Romney, as explained in the article, the undercover mistrust leads to both being guarded of one another when it comes to making decisions. Hence, making a move by calculating what the opponent is thinking is highly unlikely.

In applying these psychological and economics factors to the fiscal cliff we can clearly see that Politics seek the self-interest of the actors involved. The issue is that what is at stake is larger than just a Prisoner’s Dilemma game. 


Sources click here.

Until next post!.