The Debt Ceiling and Multiple Payoff Games

First off, yeah, I know it's been a while (December--gads) since my last post here.  It isn't that I haven't had anything to write about (got that double negative?  Good.).  Too many projects, never enough time.  Anyway, I post here when I can and when it's relevant, not according to any specific schedule.

Folks may remember the series on "The Myth of the Enlightened Self Interest."  (Part One) (Part Two) (Part Three).  These were some of my most active posts, generating lots of very interesting discussion.  Since I've posted those, obviously I've had plenty of time since then to dwell on some of the finer points and peoples' comments.

I've also had the opportunity to let multiple payoff game theory sink in as a concept and wrestle awake the sleeping snake of my rusty matrix math.  For example, when Mordicai pondered the idea of a "greatest total payoff"--really what he means is sort of a Nash-equilibrium concept across all independent variables.  A Nash^2 or Nash' equilibrium, if you will.  It's a great way to reduce some games into a single payoff game.  However, it should be obvious to anyone that not all games can be so easily reduced.  In fact, the M. Zeleny [1974] paper proves this.  Different players may have different value functions where one payoff may be exchanged with another.  These value functions may be wholly non-linear.  For example, you may want ice cream and to take a hot bath, but if you can only have one, sometimes you'd prefer to have neither.

As the debt ceiling debacle unfolded to its inevitable conclusion (and is still continuing to have grave consequences), it occurred to me that what has been plaguing Washington is an epic multiple payoff game that reduces down to a classic game of chicken.  In our case, the variables are 1) the debt ceiling itself (and the budget), which forces all other variables to compromise, 2) partisan political power (Democrat, Republican, and Election 2012), and 3) political ideology (Tea Party).  Unfortunately, both 2) and 3) are at odds with the principal 1).

The only solution in our matrix that reduces correctly to a long-term livable game requires a hold on 2) and completely dismissing 3).  That solution requires restoring taxes to pre-Bush levels, reforming entitlements, and drastic spending cuts--something nonpartisan economists such as Alan Greenspan have been saying for years.  Unfortunately, even if Washington doesn't get it, the rating agencies certainly do, as we will soon find out (I'm really hoping I'm wrong here, but unfortunately I'm probably right).

I plan to talk a bit more about ideology in my next post and how it is not only at odds with 1) and 2), but for now I'm going to punt and blithely assume that rationality trumps ideology.

Anyway, I considered writing out the multiple payoff matrix for this "dilemma" but decided to punt on that, too.  I hate it when I'm lazy, but now the damage is already done and it wouldn't matter anyway.

The important thing?  That multiple payoff game theory is quite possibly one of the most important areas of further study for the future and has real-world applications that we can use today.  Time for Gort?