Game Theory Behind Covid Small-Business Relief Package Bill
During the hardship of Coronavirus, the economy inevitably has undergone depression due to social distancing and quarantine regulations that limit people’s ability to consume. Hence, a vast amount of small businesses can no longer support themselves and are on the brink of bankruptcy. This is why a bill to support small businesses is introduced to stabilize the economy and maintain diversity.
In the news post by Washington Examiner titled “Pelosi rejects GOP small-business relief package,” the editor discusses the course in which the Republicans and Democrats fought for passing their own bills on the subject [1]. The bill was first proposed by a Republican with additional funding of 251 billion [1]. Then, it was blocked by Democrat senates, who came up with their own bill with greater coverage and costs [1]. From then on, it was a series of negotiations that lead to the delay of the new law. By that time, of course, a lot of businesses have already suffered nonrecoverable damages. The Republicans even accused the Democrats of intentionally holding up the bill [2]. I believe the interaction between the two parties is a perfect illustration of decision making under game theory.
Throughout the first few weeks of classes, we are introduced to the idea of graph theory, game theory, and matching. In particular, the idea of the Nash equilibrium strategy is intriguing. The question, in this case, is why the two parties didn’t just work together to release the funding as soon as possible for the good of everyone? This can potentially be labeled out as a two-people game, where player one is the Democrats and player two is the Republicans. There exits two actions: to collaborate or to fight or their own bill.
| Democrats/ Republicans | Collaborate | Fight |
| Collaborate | (4, 4) | (-1, 5) |
| Fight | (5, -1) | (0, 0) |
In the figure table I created above, there are four potential outcomes that could have taken place with arbitrary values just as a representation. If the two parties work together, everyone benefits as the bill is quickly signed; businesses minimize loss. So I assigned (4,4). If anyone of the party fight while the other collaborates, this leads to one party dominate the bill, and the bill is solely written and claimed by that one party. The bill will be released even faster. The party that decides to fight while the other remains peaceful will be shone in a good light as they helped small businesses during such a difficult time. In contrast, the other party will not be looked upon favorably since they didn’t come up with any measures on the topic. I assign this outcome (5,-1) and (-1,5). If the two parties fight, it is a tie where no one wins since time and money are wasted in the process. Here, the outcome is (0,0)
It can be seen that is it a dominant strategy for both parties to fight and never collaborate. For both parties, if the opposing party decides to collaborate, it is best for self to fight since 5>4. Similarly, if the opposing party decides to fight, it still the best play to fight since 1>0. The Nash equilibrium is where the two parties fight. Although it is not socially the best outcome, rationally speaking, it makes the most sense. This fits the concept that is covered in class and is analogous to the Prisoner’s Dilemma.
One observation I find specifically interesting is how senates of the two parties claim how good their revised bill is in addition to the emphasis of the incomprehensiveness of the opposing party’s bill. It is disheartening to see economic losses that could have been prevented had the two parties decided to collaborate on this matter. However, all in all, it is the most logical decision for the Democrats and Republicans to take such practice to maximize profit, as stated in the principles of game theory. Overall, it is a really great experience to apply game theory analysis in the context of politics as this clearly shows how game theory is ubiquitous: from an individual perspective to how massive crowds think. Most importantly, decisions made via game theory principles are affecting everyday lives even in ways we’re not consciously aware of.
Articles:
https://www.washingtonexaminer.com/news/congress/pelosi-rejects-gop-small-business-relief-package [1]
https://www.foxnews.com/media/kevin-mccarthy-rips-pelosi-small-business-funds-coronavirus [2]
https://areomagazine.com/2020/05/19/game-theory-and-the-politics-of-coronavirus/ [3]