ECO 502A : APPLIED GAME THEORY

PROF. VIMAL KUMAR

CASE STUDY : SPY EXCHANGE BETWEEN
US,RUSSIA & EAST GERMANY.

By Himanshu Rathee
13308

Case Study :
INTRODUCTION
Event 1 : Capture of a Russian spy.
On June 21,1957 , a Russian spy Rudolf Abel was arrested in a New York City hotel room.
Abel refused to cooperate with the U.S. government so he was sent to court.
James B. Donovan was chosen to represent Rudolf Abel.
Donovan convinced the judge to not to give the death penalty by arguing that in the future an
American Spy could get captured by the enemy and then we could use Abel for a prisoner
exchange.
The judge, on Nov 15 1957, sentenced Abel to 30 years in prison.

Event 2: Capture of an American spy.

On May 1 1960, American pilot Francis Gary Powers was captured while flying a U-2 spy plane over
the Soviet Union.
Powers received a 10 year sentence.

Event 3: Capture of American student.

In August,1961, an American Economics Student Frederic L. Pryor was arrested by the East German
police and wrongly accused for being a U.S. spy.

Event 4:Exchange of prisoners.

On Feb 10 1962, the student Frederic L. Pryor was released to his parents at Checkpoint Charlie
and Abel Powers were swapped at the Glienicke Bridge.

Game theoretic analysis:

3 players : { US , R(for Russia) , EG(for East Germany)}
Let A denote Rudolf Abel.(Russian Spy)
Let P denote Francis Gary Powers.(American Spy)
Let S denote Frederic L. Pryor.(American Student)
US has A. It has 3 actions. Give A to R, give A to EG or dont take part in exchange(give A to US)
R has P. It has 3 actions. Give P to US, give P to EG or dont take part in exchange(give P to R)
EG has S . It has 3 actions . Give S to R, give S to US or dont take part in exchange(give S to US)

This game can not be modelled as a traditional simultaneous game as each player is able to
observe the action of the other players and hence he/she can change his own action at any time.
Each player can take 3 possible actions. The chart below shows all possible 27 outcomes:
US

Figure 1:

EG

AS,P,0

AS,0,P

US

AP,S,0

US

EG

EG

EG

A,SP,0

A,S,P

US

AP,0,S

R
US

EG

AP,P,S

A,0,SP

US

EG
R

US

US

EG

EG

EG

US

EG
R

US

R
R

EG
R

R
US

EG

EG

ASP,0,0

SP,A,0
S,AP,0
S,A,P
P,AS,0
0,ASP,0
0,AS,P
P,A,S
0,AP,S
0,A,SP

US

SP,0,A

EG

S,P,A

S,0,AP
US

EG
R

P,S,A
0,SP,A
0,S,AP

R
US

EG
R

P,0,AS
0,0,ASP
0,0,ASP

Each player can observe what other players are playing and hence he can change his actions , so
although each player has only 3 possible actions, each player will take his/her action based on a
strategy.
An example of a possible strategy for US is :
{

play R if R plays US and EG plays US

play R if R plays US and EG plays EG
play R if R plays US and EG plays R
play R if R plays EG and EG plays US
play EG if R plays EG and EG plays EG
play US if R plays EG and EG plays R
play R if R plays R and EG plays US
play US if R plays R and EG plays EG
play US if R plays R and EG plays R

Therefore to specify a single strategy a player has to specify his action in 9 possible cases. The
player has 3 possible actions in all these 9 cases. So, a player has total 39 total possible strategies.
But most of these strategies can be eliminated by using rationality and common knowledge.

ANALYSING THE GAME CONDITIONS

US :
1) US prefers exchange with R more than no exchange (i.e. US prefers (P,S,A) over (A,S,P))
2) US prefers exchange with R more than exchange with EG (i.e. US prefers (P,S,A) over (S,A,P))
3) US prefers P over A and A over S.
EG:
1) Newly formed and unrecognised by US as an individual state. Recognised and controlled
mainly by the Soviet.
2) EG prefers US does prisoner exchange with EG alone , so that it gets official recognition
from US.
R:
1) Wants to exchange prisoner with US. (i.e. R prefers (P,S,A) over (A,S,P)). R prefers A over P
and P over S.
2) R prefers that US exchange with EG over US exchange with R.(i.e. R prefers (S,A,P) over
(P,S,A)) because EG is controlled by Soviet consisting mainly of R.

Eliminating Strategies for each player using Rationality and Common Knowledge:
R: Applying the following 2 logics for strategy of R:
1) R will release P only if R gets his spy A back. Therefore in all the cases where US does not
give A to R , R will keep P with itself ( i.e. R will play R).
Figure 2:

2) Also US will release A only if he gets either S or P or both in return . So in all the cases in
which US does not get anyone in return US will play US.So the cases in which US ends up
with nothing are not possible. Figure 3:

US:
1) US will release A only if he gets either S or P or both in return . So in all the cases in
which US does not get anyone in return US will play US.
2) Using Common Knowledge of the strategy of R formed in the upper figure, US knows
that R will release P if and only if US plays R. So in all the cases when US assumes R plays
US/EG , US must play R(because otherwise R will not play US/EG).If US does not play R
then R will change its action ( R will play R). Thus it would not be self consistent(as it is
assumed that R plays US/EG).
The above 2 logics contradict each other in 2 cases:
a) When EG plays EG and R plays EG then from logic1 US must play US and from logic 2 US
must play R, thus the two results contradict each other.
b) When R plays EG and R plays EG then from logic1 US must play US and from logic 2 US
must play R, thus the two results contradict each other.
Therefore such situations will never arise i.e. the case where EG plays EG and R also plays
EG will never happen and also the case where EG plays R and R plays EG will also never
happen. Figure 4 and Figure 5 respectively:

EG:
Using Common Knowledge of the strategies of US and R obtained above we can cancel
certain possibilities like if US plays US and R plays US then EG plays what? as these cases
will never actually happen:
1) R will release P only when US plays R.
2) US will relase A only when atleast one of R or EG plays US. Figur 6 & Figure 7 respectively

Uptil now we have only used 2 conditions.

1) R will release P if & only if it gets A from US.
2) US will release A if & only if it gets atlest one of S or P or both.
Using the above 2 logics and the concept of commen knowledge we were able to reduce
the strategy to the following: Figure 8 , Figure 9 & Figure 10 respectively:
US :

EG :

R:

US prefers P over A and A over P (P > A > S):

So in the strategy of US (Figure 8) in the case when EG plays US and R plays R , US will play
US.
Strategy of US: (Figure 11)

US made its preference known to both EG and R. So it can be treated as Common

Knowledge.Thus analysing Figure 9 , Figure 10 & Figure 11 and eliminating any uncommen
outcome:
EG: (Figure 12 )

R: (Figure 13)

If R plays R and US plays US then EG prefers to play EG over both US & R.

If R plays US and US plays R then EG prefers to play US over both EG & R as it would help
improve its relations with US and might lead to getting recognition from US.
EG : (Figure 14)

This preference of EG was also common knowledge ,so:

US: (Figure 15)

R: (Figure 16)

So we get
1)US plays US, EG plays EG and R plays R. (Initial Condition)
2)US plays R, EG plays US and R plays US.(What actually happened)
3) US plays R, EG plays US and R plays EG
The third outcome got cancelled because the US representative James Donovan was
actually adamant about getting both S and P in exchange for A. This was a risky move by
Donovan as it could have cause R to back of the exchange, but as seen in this game solution
the risk went in his favor.

CONCLUSION
So we were able to correctly explain the actual outcome of the exchange.
We realised that making the other players aware about their own preferences and staying
stubbern on willing to exchange only if they got both the S and P actually helped US to get a
favourable outcome.