Applying game theory to negotiations

Zvi points to a recent interview with Nobel prize winner Robert Aumann where he discusses applying game theory to the Middle East conflict. Highlights:

Aumann’s analysis of repeated games explains how cultures build systems that allow them to function reasonably smoothly. The problem is when one player does not understand the sort of game being played. For instance, when it comes to the Arab-Israeli peace process, Aumann believes that the problem isn’t that the Israelis and Arabs don’t want peace, but rather that the Israelis and their U.S. patron believe they are playing a one-time game whereas the Arabs see themselves as playing a repeated game. Jerusalem and Washington are in a hurry to conclude negotiations immediately, whereas the Arabs are willing to wait it out and keep playing the same game. The result is that Israel’s concessions, or the desire to have peace now, have brought no peace.

What Aumann is getting at is what he called in his Nobel lecture “one of those paradoxical upside-down insights of game theory.” Of course, poker players are familiar with the principle: Don’t show your hand with chips still on the table. “For repetition to engender co-operation, the players must not be too eager for immediate results,” Aumann said in his lecture. “The present, the now, must not be important. If you want peace now, you may well never get peace. But if you have time—if you can wait—that changes the whole picture; then you may get peace now.”

In Aumann’s view, the post-Oslo period shows that Israel’s behavior leaves it at a serious disadvantage in a repeated game. “In games that repeat over time,” Aumann wrote in an article called “The Blackmailers’ Paradox,” “a strategic balance that is neutral paradoxically causes a cooperation between the opposing sides.” Aumann offered the example of two men forced to split $100,000. Person A assumes that they will split it evenly and is astonished when Person B explains that he will not accept anything less than $90,000. Afraid that he will leave empty-handed, A relents and takes one-tenth of the money. In this situation, A acted as if this were a one-time game, but had he understood it as a repeated game and refused the split so that both he and B walked away empty-handed, he would have shown for future reference that he was every bit as determined as B. This in turn would make B more willing to compromise. “Likewise,” Aumann wrote, “Israel must act with patience and with long-term vision, even at the cost of not coming to any present agreement and continuing the state of belligerence, in order to improve its position in future negotiations.”

Game theory, Aumman explained to me, “has to be borne out by history and historical evidence.” One might add that it is also borne out by other human experiences, like commerce. In the Middle Eastern souk, as the Arab novelist Abdul Rahman Munif once observed, showing your interest in an item immediately triples the merchant’s price. And yet, as Aumann explained to me, “Middle Easterners are no different than anyone else in the world. Game theory is based on the idea that people react to their incentives, and you should be aware that the other party reacts to its own incentives. The other side does not always agree with you or share the same goals.”

“The way to make peace is to make your intentions clear,” Aumann told me. But Israel’s withdrawal from Gaza brought not only the second Lebanon war but also the bombardment of southern Israel and most recently the Mavi Marmara incident.

.... “It’s one thing to do something unconscionably bad,” Aumann said. For him, an expulsion that uprooted thousands of people who have yet to get their lives back in order was “unquestionably immoral.” “If it brings the peace,” Aumann said, “if the ends justify the means, that’s one thing, but this doesn’t even achieve the means. It was morally wrong and strategically stupid. The expulsion from Gaza is unprecedented. Jews have been expelled throughout history, but we own the dubious distinction of being the first people to have expelled ourselves. Never before had this happened, and it led to disaster. Our standing in the world was not improved. We didn’t get sympathy. We get sympathy when we act decisively—after Entebbe, Osirak, a lot of sympathy came after the Six Day war.”

When policymakers and analysts use the same sort of examples to draw the same historical conclusions, they’re dismissed as right-wing ideologues, and Aumann has endured the same treatment. The Nobel committee nonetheless realized he’d hit on a truth that explains a fundamental aspect of who we are as political beings—or who we are when we are most human, sitting across the table from our neighbors trying to figure out how to live together. The paradox is that there can be no co-existence if one person isn’t willing to negotiate as hard as the other. The appeaser will always be swallowed up and simply cease to exist. It is stubbornness rather than the willingness to make immediate concessions that brings about successful negotiations. In other words, if you want peace, prepare for war.