Money 2.0 Stuff: Stakes is high

OK, OK, basically, everything is a game and the field of international relations is no exception. Nation-states are players with individual preference sets and their actions are largely a function of their expectations as to how rival nation states will behave. 

The simplest game theoretic framework for international relations is the Prisoner’s Dilemma. There are two nation-states playing a one-off game. The most advantageous outcome for both players comes through cooperation, but, shucks, neither player can trust the other. If one player defects and the other cooperates, the defector gains some utility at the expense of the cooperator, although not quite as much utility as would be achieved via mutual cooperation. In this one-off game, the optimal strategy, perversely, is for both players to defect and sacrifice positive expected value. This is sometimes referred to as the Prisoner’s Dilemma Paradox, in that both players act out of self-interest and yet settle on an outcome — economic sanctions, full blown wars — that is suboptimal for both parties.