An Analysis of Game Theoretic Behavior in Times of Crisis
The past two and a half years have arguably been the most “crisis-filled” the United States (and the world) has seen for decades. The rapid spread of the global coronavirus pandemic caused widespread infection and death and subsequently upended the global economy. We have seen significant financial downturn, rising unemployment and inflation, and a concerning increase in mental health issues and educational gaps among children.
The linked article, “Can Game Theory Help Understand Human Behavior in Times of Crisis?” by Gautam Samel provides a useful commentary on how human behavior in times of crisis is often game theoretical. He provides useful analogies to the common “Prisoner’s Dilemma” game covered in this class.
Recall that in the Prisoner’s Dilemma, there are two prisoners who are arrested for the same crime and there is reasonable evidence to convict them. They are interrogated separately and each told that if he confesses and the other does not, he will go free while the other will serve a long amount of time. If they both confess, the two prisoners will each serve a lesser amount of time, and if neither confesses they will both serve a very short amount of time. Clearly the most optimal solution for both prisoners is to not confess and each serve the shortest amount of time –– but instead they will both confess since this is a dominant strategy taking into account the other’s choice.
This concept of the Prisoner’s Dilemma (as discussed in the article) can be applied to the economic crashes such as the Great Depression, the 2008 mortgage crisis, and the recent crash due to the COVID-19 pandemic. During each of these times, companies aggressively laid off employees and economists contributed to bear markets by selling stock due to “pessimistic expectations”. This of course causes a ripple effect leading to lower income, more layoffs, and further decline of the markets –– and so the cycle continues into a downward spiral.
In these times of crisis it would likely be better for everyone if companies and investors remained firm and “weathered the storm,” but with significant decline in the markets this is not the dominant game theoretic approach. On a low level, financial players making game theoretic choices are acting “selfishly” –– at the same time, each player is merely playing their best response to every other player’s best response.
The crux of the article focuses on this interesting moral dilemma: “is the collective good the goal and selfishness the means? Is the collective good the means and personal gain the end? This is the real conflict of the dilemma.” These are interesting questions that serve to connect the math and analysis of game theory to its sociological and moral implications.