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Perhaps as many as 10 million people were murdered at the hands of the Force Publique in their pursuit of wealth for Leopold and, of course, for themselves.3
In 1908, the evidence of atrocities reached such a level that they could no longer be denied, and Leopold, with great reluctance, surrendered his control over the Congo to the Belgian government.
It so happens that leaders who are really good at giving their people life, liberty, and happiness are, overwhelmingly, democratically elected and therefore face organized political competition. It also so happens that they are routinely thrown out after only a short time in office.
Why, in contrast, do those leaders who make their subjects’ lives miserable typically die in their sleep or live out their retirement years lounging on a luxurious beach after being in office twenty, thirty, or forty or more years? It’s my claim, and it may seem controversial, that kleptocratic leaders are not inherently evil—at least not necessarily so—and that those who do a great job for their people in hopes of reelection are hardly fit for sainthood. They’re all doing the right things if they want to stay in power as long as possible.
The rub is that even when crony-dependent leaders want to do good deeds, they dare not pay for them with money promised to their essential supporters. Taking money from their cronies’ pockets is a sure way to get overthrown. Spend too much on helping the people, and the cronies will find someone new to take over the top spot, someone who will pay them reliably instead of “dissipating” money on the masses.5
I believe the answer to all of those questions is yes, which brings me to the very purpose of my work and to the principal claim of this book: that it is possible for us to anticipate actions, to predict the future, and, by looking for ways to change incentives, to engineer the future across a stunning range of considerations that involve human decision making.
I grabbed a yellow pad and picked my own brain, putting together the information the model needed. I wrote down a list of everyone I thought would try to influence the selection of India’s next government.
I also wrote down my estimate of how much clout each had, what their preference was between the various plausible candidates for prime minister, and how much they cared about trying to shape that choice.
Applied game theory, my chosen method, is right for some problems but not all. Statistical forecasting is a terrific way to address questions that don’t involve big breaks from past patterns.
Behavioral economics is another prominent tool grounded in the scientific method to derive insights from sophisticated statistical and experimental tests. Steven Levitt, one of the authors of Freakonomics, has introduced millions of readers to behavioral economics, giving them insights into important and captivatingly interesting phenomena.
Prediction with game theory requires learning how to think strategically about other people’s problems the way you think about your own, and it means empathizing with how others think about the same problems.
We live in a world in which billions—even trillions—of dollars are spent on preparations for war. Yet we spend hardly a penny on improving decision making to determine when or whether our weapons should be used, let alone how we can negotiate successfully.
Decision making is the last frontier in which science has been locked out of government and business.
“GAME THEORY” IS a fancy label for a pretty simple idea: that people do what they believe is in their best interest. That means they pay attention to how others might react if they choose to do one thing or another.
Being there is what game theorists call a “costly signal.” It’s a costly signal because your expenditure of time and energy announces that you want to buy, that there’s a good chance you’ll buy from the dealership you’re visiting rather than go elsewhere, and, especially if you have kids with you, that you want to get out of there as quickly as possible.
Now as it happens, costly signals are usually good things for you. They show you’re serious about what you are saying and doing. That can give you credibility, as we will see in later chapters. Unfortunately, costly signals can have just the opposite effect when you’re a shopper. They announce your eagerness to buy, and that makes it tough to get a good deal.
So, how else can you buy a car? Here’s what I recommend so that information flows to you and very little information flows the other way; so that beliefs change in your favor and not in favor of the seller; so that prospective sellers are compelled by self-interest to reveal their lowest price (their reservation price, as economists call it) and you are not.
When you know what car you want, including the options, the color, the model, everything, then and only then let your fingers do the walking. Find every dealer that sells the car brand you want within a radius of maybe twenty to fifty miles of your home. For most of us, urban dwellers that we are, that will be a goodly number of dealerships.
I plan to buy the following car [list the exact model and features] today at five P.M. I am calling all of the dealerships within a fifty-mile radius of my home and I am telling each of them what I am telling you. I will come in and buy the car today at five P.M. from the dealer who gives me the lowest price.
I arrive at the lowest-priced dealer, check in hand, just before 5:00 P.M. to close the deal. If there is any change in the terms I leave immediately and go to the second-best offer, and so forth. I have only once had to pay the second-best price quoted to me.
Game theory is about strategizing in your dealings with other people. Part of strategizing involves realizing that the other person is doing the same.
The telephone approach solves all of these problems. On the telephone, body language is eliminated from the equation and you, not the seller, are in control of the conversation.2 You have set the sequence of moves and defined the game. They know that you will speak to enough dealers that anyone who is on the cusp of a manufacturer’s incentive, for instance, will give you a really good price. They reveal information to you however they reply. The fact that some of them leave the conversation early is a good thing—it saves you time. You have not lost an opportunity.
You may be surprised to learn that buying cars and negotiating international crises are not all that different. In fact, I’ll show you how we go from buying a car to negotiating the North Korean nuclear threat.
Game theory urges us to take a cold, hard look at what it means to be a calculating, rational decision maker.
Game theory comes in two primary flavors. Cooperative game theory was invented by John von Neumann and Oskar Morgenstern.1 Their 1947 book on the subject drew a clear and compelling analogy between problems people (or nations) face and parlor games like charades or the name-in-the-hat game, a favorite in my family.
In this universe people make deals and keep them.
By the early 1950s, the mathematician John Nash, the subject of A Beautiful Mind and the winner of the 1994 Nobel Prize in Economics, invented a different kind of game theory.2 He drew attention to the propensity people have not to cooperate with one another.
Some may find this materialistic explanation of personal sacrifice offensive. The trouble is, it’s a lot costlier to believe mistakenly in other people’s goodwill than it is to be a cynic and assume they’re looking out for themselves (until and unless their actions say otherwise). It is hard to get burned in personal dealings if you remember Ronald Reagan’s dictum: Trust but verify. For those who are offended by this tough view of human nature, I urge you to consider some facts.
The United States operates the Concerned Local Citizens program in Iraq. Following the alphabet-soup tradition so beloved by the Pentagon, the Iraqis participating in this program are known as CLCs. CLCs help guard neighborhoods against insurgents. They are paid ten dollars a day for their service. It doesn’t seem as if there is anything crass or overly materialistic about that. But then we should pause to ask, who are these CLCs and what, exactly, are we buying for ten dollars a day?
As it happens, being an ex-insurgent employed as a CLC is a very good job by Iraqi standards. At ten dollars a day, CLCs can earn a few thousand dollars a year from the United States, plus, of course, whatever extra they make on the side. The average Iraqi, despite that country’s huge oil wealth, earns only about six dollars a day, almost half what a CLC gets!3 Those who think that terrorists are irrational religious zealots who do not respond to monetary and personal incentives should remember that a daily dose of just ten dollars is enough to get such folks to become quasi-friends of the
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From the Talmudic perspective as expressed by Moses Maimonides (1135–1204), she would have had at least as big a problem. Maimonides, or Rambam as he was known in his day, concluded that charity given anonymously to anonymous recipients in order to help them become self-sufficient is the best kind. Mother Teresa’s giving did not rise to this standard, and she made sure it didn’t. She did not give anonymously; she knew to whom she was giving; and she did not strive particularly to make the beneficiaries of her kindness self-sufficient. In fact, she went out of her way to make herself and her
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Or maybe, in Mother Teresa’s case, the rational, calculating motivation behind her deeds was more complex. We know now that she questioned her religious faith and the existence of God.4 Her doubts apparently began shortly after she started to minister to the poor and sick in Calcutta. By then maybe she felt locked into the religious life she chose for herself. Doubting God and ill-prepared for a life outside the Church, perhaps she found a perfect strategy for gaining the acclaim in life that she feared might not exist after death.
Rational people know when to stop searching—when enough is enough. (I try to impart this message to my students. When they tell me they want to make their term papers as good as possible, I plead with them not to. A paper that is worked on until it is as good as possible will never be finished.)
Rationality is about choosing actions that are consistent with advancing personal interests, whatever those interests may be. It has nothing to do with whether you or I think what someone wants is a good idea, shows good taste or judgment, or even makes sense to want.
The same holds for modern-day terrorists. They’re not nuts. They are desperate, calculating, disgruntled people who are looking for ways to force others to pay attention to their real or perceived woes.
What exactly does rationality require? Actually it’s a simple idea. To be rational, a person must be able to state a preference among choices, including having no preference at all (that is, being truly indifferent). Also, their preferences must not go in circles. For instance, if I like chocolate ice cream better than vanilla—who doesn’t?—and vanilla better than strawberry, then I also presumably like chocolate ice cream better than strawberry.
Taking calculated risks is part of being rational. I just need to think about the size of the risk, the value of the reward that comes with success, and the cost that comes with failure, and compare those to the risks, costs, and benefits of doing things differently.
Many rational acts impose short-term costs on the doer with the expectation of longer-term gains. That’s true of tipping, gift giving, flushing public toilets, not littering, and lots more. Sure, you might leave a tip even though you don’t expect to be in the particular restaurant again. Tipping, however, like gift giving, is a social norm that has arisen and taken hold because we have learned that its effects on the expectations of others (waiters, dinner party hosts) are important to making our own lives a little happier and easier.
It is commonplace to think that foreign policy should advance the national interest. This idea is so widespread that we accept it as an obvious truth, but is it? We hardly ever pause to ask how we know what is in the national interest. Most of the time, we seem to mean that policies benefiting the great majority of people are policies in the national interest.
It just happens that any time there are trade-offs between alternative ways to spend money or to exert influence, there are likely to be many different spending or influence combinations that beat the prevailing view. None can be said to be a truer reflection of the national interest than another; that reflection is in the eyes of the beholder, not in some objective assessment of national well-being.
The key to any of these games is sorting out the difference between knowledge and beliefs. Different players in any game are likely to start out with different beliefs because they don’t have enough information to know the true lay of the land. It is fine to sustain beliefs that could be consistent with what’s observed, but it’s not sensible to hold on to beliefs after they have been refuted by what is happening around us.
The calculation we just did is an example of Bayes’ Theorem.9 It provides a logically sound way to avoid inconsistencies between what we thought was true (a positive test means a player uses steroids) and new information that comes our way (half of all players testing positive do not use steroids). Bayes’ Theorem compels us to ask probing questions about what we observe. Instead of asking, “What are the odds that a baseball player uses performance-enhancing drugs?” we ask, “What are the odds that a baseball player uses performance-enhancing drugs given that we know he tested positive for such
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In real life there are plenty of incentives for others (and for us) to lie. That is certainly true for athletes, corporate executives, national leaders, poker players, and all the rest of us. Therefore, to predict the future we have to reflect on when people are likely to lie and when they are most likely to tell the truth. In engineering the future, our task is to find the right incentives so that people tell the truth, or so that, when it helps our cause, they believe our lies.
Part of the key to accumulating bargaining chips, whether in poker or diplomacy, is engineering the future by exploiting leverage that really does not exist.
Of the many lessons game theory teaches us, one of particular import is that the future—or at least its anticipation—can cause the past, perhaps even more often than the past causes the future.
Wait a moment, let’s slow down and think about that. The argument boils down to claiming that when the costs of war get to be really big—arms are out of proportion to the threat—war becomes more likely. That’s really odd. Common sense and basic economics teach us that when the cost of anything goes up, we generally buy less, not more. Why should that be any less true of war? True, just about every war has been preceded by a buildup in weapons, but that is not the relevant observation. It is akin to looking at a baseball player’s positive test for steroids as proof that he cheats. What we want
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Big wars are very rare precisely because when we expect high costs we look for ways to compromise. That, for instance, is why the 1962 Cuban Missile Crisis ended peacefully. That is why every major crisis between the United States and the Soviet Union throughout the cold war ended without the initiation of a hot war. The fear of nuclear annihilation kept it cold.
They also remind us that the logic of reverse causation—called endogeneity in game theory—means that what we actually “observe”—such as arms races followed by war—are often biased samples.
Deals and promises, however sincerely made, can unravel for lots of reasons. Economists have come up with a superbly descriptive label for a problem in enforcing contracts. They ask, is the contract “renegotiation-proof”?2 This question is at the heart of litigiousness in the United States.
The original deal really was not a firm commitment to sell (or probably, for that matter, to buy) electricity at a specified price over a specified time period when the market price moved markedly from the price stipulated in the agreement. Justice gave way, as it so often does in our judicial system, to the relative ability of plaintiffs and defendants to endure pain.
