75. The Strategy of Conflict Part 1, Deception and Tradition

Note: This post is the seventy-fifth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is about the book, "The Strategy of Conflict" by Thomas Schelling.

Writing in the 1960's, Schelling was concerned that the field of game theory was too focussed on zero-sum games (games where one person's gain is another's loss - think chess). He proposed a continuum of games, with a pure zero-sum game at one end, and a pure coordination game (where both people gain if they make the right choices and both lose if they don't - think charades) at the other, with 'mixed-motive' games in the middle. At the zero sum game end of the spectrum, participants in the game have negatively correlated outcomes (what's good for me is bad for you) while at the coordination end, they have positively correlated outcomes (what's good for me is good for you as well).

Schelling recognized that in the zero-sum game, deception and secrecy was the order of the day, while in the coordination game, open, forthright communication (honesty) was the key to success.

In the coordination game, Schelling offers a list of examples of how people will find a way to coordinate even when they can't communicate directly with one another:

"Name 'heads' or 'tails.' If you and your partner name the same, you both win a prize.

Circle one of the numbers listed in the line below. You win if you all succeed in circling the same number.

7 100 13 261 99 555

..."

These are the first two in a list of examples that show that when people need to agree on something without communicating, they focus on whatever they think will be the most obvious element to everyone ('heads' because it is written first, '7' because it is the first number in the list, in a later example, dividing a territory along a river since it is the most notable feature of the landscape.)

Later on, Schelling introduces games where the two participants must divide something between themselves. Attacking the other participant can lead to a gain for yourself, but reduces the total amount to be divided. The participants overall do best when they can identify some agreeable way to divide the pie without fighting, but individual participants do best if the agreement is made to suit them.

Schelling theorizes that in situations of this nature, tradition can play a powerful role in providing a focal point that people can agree on. Any attempt to break with tradition re-opens all the contention for position of the various parties involved and can lead to conflict and poorer results for all unless a new tradition can be quickly established¹.

Says Schilling, "We have now rigged the game so that the players must bargain
their way to an outcome, either vocally or by the successive moves that they make, or both. They must find ways of regulating their behaviour, communicating their intentions, letting themselves be led to some meeting of minds, tacit or explicit, to avoid mutual destruction of potential gains. The 'incidental details' may facilitate the players' discovery of expressive behaviour patterns; and the extent to which the symbolic contents of the game - the suggestions and connotations - suggest compromises, limits and regulations should be expected to make a difference.

It should, because it can be a help to both players not to limit themselves to the abstract structure of the game in their search for stable, mutually nondestructive, recognizable patterns of movement. The fundamental psychic and intellectual process is that of participating in the creation of traditions"

In 'Systems of Survival' Jane Jacobs, while not using the language of game theory, expressed a similar speculation about the role of tradition,"I suspect one reason revolutionary governments have become cruel so easily and swiftly after ascendancy is that they've lost the brakes of tradition."

If there wasn't the same potential in the situation for destructive conflict, then agreement, and tradition, wouldn't need to carry the same premium, but in situations where there is potential for a costly back and forth battle, it's better to reach some agreement than none at all - and the bargaining can come down to who can identify a 'traditional' settlement that favours their interests.

That's as far as I've got so far in 'The Strategy of Conflict' but even if there is nothing else interesting in the rest of the book, it's been worthwhile.

----
¹ For an example of how angry people can get with even a trivial break in tradition, consider the reallocation of a small amount of downtown Vancouver traffic right of way from cars to bicycles and just how angry this break with the 'all cars all the time' tradition has made people, leading to what one of the few sane articles written about the change accurately described as 'an outpouring of spectacular gibberish' - the gibberish makes more sense if you understand the enraged car drivers as being worried that once tradition has been broken in this fashion, who knows where it will lead or when it will stop.

36. Positional Externalities

Note: This post is the thirty-sixth in a series. Click here for the full listing of the series.

Today's topic is a particular type of negative externality known as positional externalities. They're called 'positional' because they relate to areas where what matters is one's position relative to how others are doing, as opposed to some absolute measure. i.e. Trying to win the gold medal rather than trying to set a world record.

Wikipedia describes positional externalities as follows:

Positional externalities refer to a special type of externality that depends on the relative rankings of actors in a situation. Because every actor is attempting to "one up" other actors, the consequences are unintended and economically inefficient.

One example is the phenomenon of "over-education" (referring to post-secondary education) in the North American labour market. In the 1960s, many young middle-class North Americans prepared for their careers by completing a bachelor's degree. However, by the 1990s, many people from the same social milieu were completing master's degrees, hoping to "one up" the other competitors in the job market by signalling their higher quality as potential employees. By the 2000s, some jobs which had previously only demanded bachelor's degrees, such as policy analysis posts, were requiring master's degrees. Some economists argue that this increase in educational requirements was above that which was efficient, and that it was a misuse of the societal and personal resources that go into the completion of these master's degrees.

Another example is the buying of jewelry as a gift for another person, e.g. a spouse. For Husband A to show that he values Wife A more than Husband B values Wife B, Husband A must buy more expensive jewelry than Husband B. As in the first example, the cycle continues to get worse, because every actor positions him or herself in relation to the other actors. This is sometimes called keeping up with the Joneses.

One solution to such externalities is regulations imposed by an outside authority. For the first example, the government might pass a law against firms requiring master's degrees unless the job actually required these advanced skills.

Competition for positional goods is a zero sum game, in that any gain made by one person is exactly offset by losses to another. If I move up from having the third nicest house on the block to having the second nicest, someone else has moved down from second to third. Therefore, whether competition in these areas is beneficial to society or not depends on whether any positive side effects from the act of competition outweigh the resources devoted to an area in which no gains can be made.

In 'The Efficient Society' Joseph Heath recounted a story of native leaders who competed with each other on the basis of who could afford to destroy more of their own possessions. This is an extreme case of competition for status with negative side effects.

Generally, there will be a greater gain to society if people focus on achieving absolute improvements rather than relative ones. For example, innovation that allows every house on the street to have indoor plumbing is more valuable than everybody on the street competing to see who can have the biggest house. To the extent that people concern themselves with status rather than looking for improvements to their lives that don't involve comparison/competition with others, greater gains will be made, because this approach will reduce the presence of negative positional externalities.