Climate Change: Through the eyes of Game Theory
Reference Link: https://www.theatlantic.com/notes/2016/04/climate-change-game-theory-models/479340/
Climate change has been the topic of some serious discussion these past couple of years. President Obama signing the Paris Climate Agreement and President Trump pulling out of it at the first chance he got is indicative of the intense debate surrounding the perception, existence and resolution of climate change. On a general basis, everyone has accepted the fact that climate change is real. Even President Trump overturned his own statement about climate change being a conspiracy by Chinese manufacturers. However, even though there is increasing acceptance toward the fact that climate change is real, the perception of the problem is not unanimous. Many think this problem is not a serious one, or one to be tackled right away. Some people do recognize its seriousness but think that trying to tackle the issue might lead them on a path of economic losses and thus into a position of disadvantage. This varied perception of the severity of the problem, in ordinary citizens and among world leaders alike, creates a possibility of different decisions with different goals and interests in mind. To map these decisions, and think of a way for everyone to take a note of climate change as a serious and immediate threat, we use game theory.
Usually, the biggest hurdle in tackling climate change is for the participating parties (states, countries, regions) to agree to certain self-imposed regulations (as in the Paris Climate Accord) and to stick to them. Therefore, for the sake of a simplified model, let us consider the USA and China, two countries that contribute to 40% of the total greenhouse emissions in the world. Now we try to create a model with 2 players: USA and China, having 2 strategies: to “cooperate” or to “exploit.”
For the sake of the model, let X correspond to USA and Y correspond to China.
Looking at the model, we can see that both China and the US benefit from violating from the agreement at the moment. Since, we do not face a severe existential threat from downgrading the environment at the moment the strategy to exploit will, at least in the present, give both countries higher pay-offs than cooperating. In the given short-term model, both countries will pick their dominant strategies, and choose to exploit, with the NE being (exploit-exploit). This short-sighted strategy, will however, exploit the environment for temporary gains. This continued exploitation will at some point of time in the future lead us to a point of environmental collapse. When on the brink of an environmental collapse, the option to exploit is fatal for every country, no matter what the other countries decide. Plotting a new model for when we are the point of environmental collapse:
In this model, let X correspond to USA and Y correspond to China.
This diagram models the scenario we eventually reach after sticking to the short-sighted dominant strategy to exploit. In this model, preserving the ecosystem and environment for life to sustain is a priority for every country, thus making “cooperate” the dominant strategy. In this situation both countries profit from cooperating and sticking to self-imposed environmental restrictions.
Environmentalists around the world want all countries to cooperate and stick to the self-imposed environmental restrictions that they imposed on themselves, through pacts, agreements and international forums. If in the short-term, exploiting has higher pay-offs than cooperating there will always be arguments against cooperating. The precarious task for environmentalists is, thus, to convince world leaders along with ordinary citizens of the urgent and immediate need to preserve and protect the environment and prevent climate change. In this manner, game theory helps us visualize possible arguments in the current state of affairs and reason with existing obstacles in our fight against climate change. It also helps us observe in what scenario these obstacles disappear, thus helping us onto the path of removing these obstacles.
As I conclude, it is important to realize that the models we used in this analysis of climate change are overly-simplified. These models only talk about the two biggest contributors to the problem, ignoring all other small yet possibly significant contributors to the problem of climate change. The strategies picked in the game are also not as simple as they appear. Cooperation and exploitation can happen in varied proportion and not necessarily in the black and white nature we portrayed in our game. Despite the simplified nature of this game, its simple application of game-theory gives us clarity to understand a complicated global issue. The game also provides some basic intuition for solving this complex and tedious problem. This analysis is a perfect example of the power of game theory, in simplifying complex situations and helping us acquire an intuition about them in a straightforward, simplified way.