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[Letter to the editor] Playing chicken with prosperity

Economics is founded on the principle of gains from trade. If economic activity is considered as a kind of game, then all players are made better off when they cooperate. Of course, political science knows other types of “games,” notably the prisoner’s dilemma. In this situation, a player may be better off by refusing to cooperate. Hence a situation where prisoner’s dilemma is prevalent will foster poor results because total welfare will never be maximized.

Lately, politicians and businessmen seem to be engaged in the far more exotic game of chicken. This game differs from the prisoner’s dilemma because the worst outcome (for example, a car crash) occurs when neither player cooperates. The goal is to use the threat of mutual destruction to force an opponent to be the “chicken.” By contrast, in the prisoner’s dilemma, the worst outcome, from the point of view of all players, occurs when one player is duped into cooperating while the other player does not cooperate.

The U.S. Financial Crisis Inquiry Commission characterized the economic meltdown of 2007 as a “game of chicken” with major banks and investment firms challenging the government. The chicken game now seems to be a fundamental mode of governance in the U.S. Currently, Democrats and Republicans are playing chicken over budget deficits. In fact, many Republicans endorse a “starve the beast” theory of government budgeting. This approach seeks to purposely stoke a budgetary breakdown, thereby forcing a reduction in government spending. For example, in 2010 Texas Lieutenant Governor David Dewhurst referred to the state’s budget gap in his inaugural speech as an opportunity. Some claim the Texas deficit imbalance was intentionally created in order to force deep cuts in spending. At the national level, the House and Senate are now engaged in an even more high-stakes game of chicken: If neither side is willing to be blink, the federal government will be shut down.

The seemingly irrational, and even suicidal, game of chicken, if played well, can be won. South Koreans know this all too well after being continually beaten at it by the Kim Jong-Il regime. In the classic chicken game, two cars on opposite sides of the road speed toward one another, driving on the same lane. The car that veers off is the loser, the chicken. If neither player veers, both players will die. This game can be won if one player clearly signals that he or she actually wants to die. Another trick is to demonstratively reveal that the player’s car has been modified to only drive straight. These strategies guarantee that the opponent will veer. The losing strategy, on the contrary, is for a player to appear to be similar to his or her opponent. It is readily seen how brilliantly the Kim family plays this game.

Signaling insanity and intentionally burning bridges are thus the winning strategies for anyone playing chicken. In 2007, investment firms signaled that they had gone crazy, driven by “animal spirits” and “irrational exuberance.” At the same time, they intentionally limited available options by arguing they were so interconnected that they were “too big to fail.” As shown by economist Russ Roberts, these investment firms calculatingly forced the government to become the “chicken,” earning billions in government guarantees and bailouts.

Hence the hottest business strategy is no longer “6 Sigma” or “excellence” but feigning stupidity and helplessness. In American politics, Republicans also highlight that they are beholden to the seemingly irrational and erratic Tea Party, a movement which is, nonetheless, backed by hard-headed businessmen. The seeming craziness of a Sarah Palin or Tom Tancredo has effectively forced the Democrats to veer to the side in the budget debate.

Evolutionary economics argues that history is important for understanding firm behavior. As in nature, firms experiment ― often randomly ― with different strategies. Similar to genes in animal evolution, the wining strategies reproduce themselves so that viable strategies become more and more plentiful. Eventually they become hardwired into the governing structure of the system.

If the assumptions made here are true ― that the evolutionary perspective is valid and that the chicken game has become widespread in business and politics, then social agents will increasingly acquire the habits of overtly signaling their irrationality and purposely foregoing many of their viable options. According to standard economics, continual use of these stratagems will harm long-term prosperity.

By Chris Monday

Chris Monday is a professor of the Department of International Studies of Dongseo University in Busan. ― Ed.