Game-Theoretical Study of Trade and Military Alliances
Establishing and maintaining peaceful relations with other countries is usually one of the primary goals in international politics. Until recently, historians believed that many conflicts were caused by specific events in past, but now there is growing consensus that the environment created by the complex interactions, alliances, and trade agreements between nations could play a huge role in determining whether conflict or peace will spread.
Matthew Jackson and Steven Nai of Stanford University apply network theory and game theory to analyze military and trade links between countries over the past few centuries.
http://www.technologyreview.com/view/531736/network-theory-reveals-the-hidden-link-between-trade-and-military-alliances-that-leads/
Ultimately, they hope to identify the factors that determine whether a network is stable against the outbreak of war, and how we may structure our foreign relations so as to promote peace. In their study, they considered several theoretical networks of countries that could form military coalitions of varying strengths. In this network, a country is vulnerable to attack if their coalition is weaker than another country’s coalition and if the cost of war is less than the benefit. Using game theory, they were able to mathematically prove that such a network cannot be stable against war. That is, there cannot exist a network in which no country is vulnerable to an attack by another and no country can change alliances such that an attack is viable.
Jackson and Nai constructed another model which also takes trade relations into account and discovered that the stability of such networks increase dramatically and that networks with these properties could be war-stable. They explain that trade provides a reason to maintain alliance and serves as an economic disincentive to war, since attacking a country would disrupt trade between them. In addition, they found that data from their model matches up accurately to real-world data after the 1960s. This makes sense because international trade increased rapidly after World War II and the number of conflicts between countries dropped dramatically.
The study provides fascinating insight into the way conflicts emerge and how we can prevent them and relates to the material in class regarding structural balance and positive an negative links. By applying game theory to analyze such networks, we can gain a deeper understanding of why and how networks change. The next step should be to use game-theoretical models of networks like these to predict how real-world networks will evolve and use this information to solve important problems.