The Cold War and Game Theory

Guest Lecture for Principles of Economics

Jacek Rothert

Jacek Rothert

The Cold War and Game Theory

Brief history of the Cold War

Division of Berlin

Jacek Rothert

The Cold War and Game Theory

Brief history of the Cold War

Space race
1

Soviets were first in space

Jacek Rothert

The Cold War and Game Theory

Brief history of the Cold War

Space race
1

Soviets were first in space

But Americans were first on the Moon

Jacek Rothert

The Cold War and Game Theory

Brief history of the Cold War

War games (never happened)

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

1

Focus on one of the major confrontations - Cuban Missile

Crisis in October 1962

Why was Cuba a problem?

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

1

Focus on one of the major confrontations - Cuban Missile

Crisis in October 1962

Why was Cuba a problem?

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

January 1, 1959 - Fidel Castro overthrows Fulgencio Batista.

1960 - Cuba nationalizes all US owned property.

1961 - Bay of Pigs invasion (fails)

1962 - Soviet Union deploys its missiles in Cuba

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

October 14th - U-2 spy plane discovers missile bases being

built in Cuba.

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

October 14th - U-2 spy plane discovers missile bases being

built in Cuba.

October 20-21st - US responds with a blockade coupled with

the demand for the Soviets to withdraw the missiles.

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

October 14th - U-2 spy plane discovers missile bases being

built in Cuba.

October 20-21st - US responds with a blockade coupled with

the demand for the Soviets to withdraw the missiles.

October 28th - Soviets announce they would withdraw the

missiles.

Jacek Rothert

The Cold War and Game Theory

Cuban Missile Crisis

The goal is to explain:

why did we observe the missile build up and the blockade?
why didnt we observe the actual conflict?

We will use two concepts from game theory to explain those

two facts.

Jacek Rothert

The Cold War and Game Theory

Using Game Theory

Game Theory studies strategic interactions

My optimal behavior depends on the behavior of others

Interactions of people, firms

Cold War was a strategic interaction between the West and

the Communist block

Jacek Rothert

The Cold War and Game Theory

The first question

Question 1
Why did we observe the deployment of missiles and the
blockade?

Jacek Rothert

The Cold War and Game Theory

The first question

Invade/protect Cuba?
Make the enemy believe that you will not hesitate to attack?
Show off your nuclear potential?
The Cuban Crisis was a psychological conflict. The winner
would have political advantage in other fields of the Cold War
(e.g. the problem of Berlin).
Bertrand Russel (1953) compared the Cold War politics to the
chicken game, known from game theory.

Jacek Rothert

The Cold War and Game Theory

Chicken game
Idea: two cars driving towards each other. The first to swerve
loses.

Jacek Rothert

The Cold War and Game Theory

Chicken game
Idea: two cars driving towards each other. The first to swerve
loses.
We can write the outcome of the game in a matrix:

Player 1

Swerve
Straight

Player 2
Swerve
Straight
Tie, Tie
Lose, Win
Win, Lose Crash, Crash

Jacek Rothert

The Cold War and Game Theory

Chicken game
Idea: two cars driving towards each other. The first to swerve
loses.
We can write the outcome of the game in a matrix:

Player 1

Swerve
Straight

Player 2
Swerve
Straight
Tie, Tie
Lose, Win
Win, Lose Crash, Crash

We can assign numbers to different outcomes:

Player 1

Swerve
Straight

Player 2
Swerve Straight
0,0
-1 , +1
+1 , -1 -10 , -10

Jacek Rothert

The Cold War and Game Theory

Equilibrium
1

We want to know whats the likely outcome of the game.

Nash Equilibrium - a way to figure it out

Nash Equilibrium - each player does its best given the action of
the other player

Jacek Rothert

The Cold War and Game Theory

Equilibrium
1

We want to know whats the likely outcome of the game.

Nash Equilibrium - a way to figure it out

Nash Equilibrium - each player does its best given the action of
the other player

Player 1

Swerve
Straight

Player 2
Swerve Straight
0,0
-1 , +1
+1 , -1 -10 , -10

There are two pure strategy Nash Equilibria of this game:

1

(Swerve,Straight)

(Straight,Swerve)
Jacek Rothert

The Cold War and Game Theory

Chicken game and the Cuban Missile Crisis

We need to know:
1

Players

Actions

Payoffs

Jacek Rothert

The Cold War and Game Theory

Chicken game and the Cuban Missile Crisis

Players

Jacek Rothert

The Cold War and Game Theory

Chicken game and the Cuban Missile Crisis

Actions
1

Kennedy
Do nothing
Respond with a blockade

Khrushchev
Keep deploying missiles
Retreat

Jacek Rothert

The Cold War and Game Theory

Chicken game and the Cuban Missile Crisis

Payoffs

USA

Do nothing
Blockade

Retreat
0,0
+1,-1

USSR
Deploy more missiles
- 1 , +1
- 10, - 10

Why did the USA respond with a blockade?

Why did the USSR retreat?

Main idea behind the chicken game: brinkmanship - bring the

situation to the edge of a disaster in order to achieve highest
possible outcome.
Jacek Rothert

The Cold War and Game Theory

Chicken game and the Cuban Missile Crisis

Why did the USA respond with a blockade?

In the chicken game it is important to convince your enemy
that you will not swerve.
If I believe the other guy is crazy and will rather crash than
swerve, Id rather swerve.

Kennedy knew he had to do something:

(...) the greatest danger of all would be to do nothing

Jacek Rothert

The Cold War and Game Theory

The second question

Question 2
Why didnt we observe the actual conflict?

Jacek Rothert

The Cold War and Game Theory

The second question

Question 2
Why didnt we observe the actual conflict?
We will use a repeated version of the Prisoners Dilemma to
answer this question.

Jacek Rothert

The Cold War and Game Theory

Prisoners Dilemma - review

Idea: two prisoners locked in separate rooms.

Dominant strategy for each of them is to betray. The
resulting outcome is worse for both of them.

Prisoner 1

stay silent
betray

Prisoner 2
stay silent betray
0,0
-5,5
5,-5
-3,-3

The unique equilibrium of this game is (betray, betray) - quite

a bad equilibrium for the two prisoners.

Jacek Rothert

The Cold War and Game Theory

Prisoners Dilemma in the Cuban Crisis context

Apply that game to potential conflict between two countries:

USA

Dont attack
Attack

USSR
Dont attack Attack
0,0
-5,5
5,-5
-3,-3

The unique equilibrium of this game is (attack, attack) - quite

a bad equilibrium for both countries (and the rest of the
world).

Jacek Rothert

The Cold War and Game Theory

Repeated Prisoners Dilemma

Tomorrow is important!

If the USSR attacks today, USA will retaliate tomorrow.

Modify the objective - each player cares about payoffs in all

periods.

Jacek Rothert

The Cold War and Game Theory

Repeated Prisoners Dilemma

Example 1
Suppose USA and USSR restrain from attacking in each period.
What are their payoffs?
1

Today: 0

Tomorrow: 0

The day after tomorrow: 0

etc.

Jacek Rothert

The Cold War and Game Theory

Repeated Prisoners Dilemma

Example 2
Suppose USSR considers attacking today but knows that it will
cause retaliation tomorrow. What is USSRs payoff?
1

Today: 5

Tomorrow: -3

The day after tomorrow: -3

etc.
If you care enough about tomorrow, it is possible to make
(dont attack, dont attack) an equilibrium of the game.
The psychological conflict in 1962 didnt turn into an open
war.
Jacek Rothert

The Cold War and Game Theory

Jacek Rothert

The Cold War and Game Theory

Importance of Game Theory

We used economic tools to understand real-life (strategic)

political situation.

Can you think of a strategic situation in your life you can

apply game theory to?

Jacek Rothert

The Cold War and Game Theory