Sorry for the long silence. I thought I would just engage in a little brazen self-interest and get you caught up on what I have been doing. The last half of the last chapter of The Predictioneer’s Game predicted failure at Copenhagen and highlighted why it would fail — especially the differences between the US, Europe, China, India and Brazil. Here is a case where I am sorry to say the model has proven right and the world will probably be worse off for it.
Really if we want to cut carbon emissions the place to begin is at home. Unilateral action is a much surer way of having impact than toothless universal international treaties. See some of my presentations on line about this (talks at the World Affairs Council, the London School of Economics, La Ciudad de los Ideas in Puebla, Mexico and quite a few others).
How are things going in Pakistan? The analysis in the penultimate chapter of The Predictioneer’s Game indicated that IF — a contingent forecast — the US gave Pakistan $1.5 billion in aid then the Pakistani government would turn away from making side deals with the Taliban and Al Qaeda militants in Pakistan and, instead, go after them but not wholeheartedly. This is what has been happening. The Pakistani regime is now doing much more to rein in the militants but it has explicitly refused to go after the Pakistani Taliban leader (who you can see sitting next to the Jordanian doctor who murdered 7 US CIA agents in Afghanistan as well as one Jordanian agent). Going after him apparently is too politically costly for the Pakistani leaders. It will be interesting to see whether this changes given his video appearance. Anyone care to try to model that? Please do and post your results.
Before the aid deal was approved, the Pakistani government had negotiated a partial deal with the Taliban who had taken over Swat. Now they are fighting them. Looks like my students back in 2008 pretty much got it right.
I have been doing lots of talks, radio and TV about the book and having a great time in the process. It is frustrating, however, when people say the book lacks the math — true but then the math is in other, not widely read (because of the math) books and articles of mine so it is not like it isn;t available for those who really want to know. And then there are those who persist in believing the History Channels misstatement that it is all a big secret. Lots of papers appear in peer reviewed publications not only containing the theory but also containing real-time predictions so anyone can check out the track record in those publications as well.
Sorry to whine. These criticisms irk me exactly because I have tried to make everything transparent to avoid just these criticisms. Oh well, you really can’t please everyone.
I have gotten lots of nice feedback from people who have tried the model. How about some of you writing your experiences for the blog. For instance, someone recently called into the Forum radio show on NPR while I was on and said he tried the car buying method and saved over $2,000. Wow, that’s great. I’d like to hear more about such experiences. Others have used the online model with considerable success. Let’s share those experiences online.
To reduce Afghan corruption, Secretary Clinton could ask for a simple-to-implement concession. Select an outside agency (a major accounting firm, for instance) to audit Afghanistan’s books and the financial records of its senior government officials and senior civil servants. For the first audit — to be conducted based on the records as of one day prior to the Afghan president’s inauguration — guarantee amnesty to leaders and civil servants associated with missing funds. Ensure that the independent audit — not controlled by the Afghan government — is repeated each year and after the first year prosecute fully any cases that are consistent with ongoing corruption and improper allocation of funds. If the punishment for corrupt practices is severe enough then leaders and civil servants will have the incentive to police themselves against corrupt practices. If the second audit shows continued corruption on a significant scale then the United States should cut off aid to the government. The risk of lost aid will further incentivize improved behavior, stimulating accountability to the people and improved performance by the government.
And if the Afghan government refuses to go along with this proposal that is a good indication that they do not mean what they say when they promise to crack down on corruption.
What do you think? Seems like this will ferret out the crooks and possibly put Afghanistan onto a healthier developmental course.
And in a sermon at the main weekly prayers in Tehran on Friday, hardline cleric Ahmad Khatami gave vent to the misgivings of many in the regime.
“What guarantee do we have that if we deliver our enriched uranium, we will get the fuel?” he asked. “If they want to harm our rights, our response will be to enrich the fuel ourselves.”
In an interview with the New York Times on Thursday, the UN watchdog’s director Mohamed ElBaradei spoke of the difficulties of brokering a deal amid the legacy of suspicion between Tehran and Washington, which have had no diplomatic relations since the aftermath of the 1979 Islamic revolution.
“There’s total distrust on the part of Iran,” ElBaradei said.”
OK, let’s diagnose this from a game theory point of view. Here we have a classic case of a time inconsistency problem: turn over enriched uranium today to a third-party (whose interests are different from Iran’s) and tomorrow the third party promises to deliver the enriched uranium in a transformed form for medical use. What guarantee, indeed, is there that the other party, once it takes possession of the uranium, will meet its end of the bargain. Those of us in the United States and Western Europe take on faith that our governments will act honorably but those with the most to lose do not. There is, in fact, no credible commitment in the deal.
What is needed is an arrangement that protects Iran’s right to enrich uranium for peaceful uses under the Nonproliferation Treaty while reassuring the rest of us that it will not build a nuclear weapon. Here is one idea of how to achieve this:
Simultaneously:
1. Iran agrees to allow IAEA inspectors to shut down — but leave intact – Iran’s centrifuges and to maintain as many inspectors on site as the IAEA believes it needs to guarantee that the centrifuges remain shut down.
2. The UN, with the financial backing of the US, EU, Russia and China, agree to provide Iran with a negotiated amount of civilian energy and medical isotopes. Iran pays part of the cost equal to the cost it would have borne in generating such energy and medica
With Palestinian moderate leader Abbas indicating he will not seek re-election we must ask where the prospects for peace between Israel and Palestine are headed and why. I am ever optimistic that peace will push its way into that corner of the world by the end of Obama’s first term, but I must admit that increasingly my optimism survives despite evidence to the contrary. So what’s the problem? Everyone is better off with peace. In fact, however war is resolved, the same deal presumably could be struck without all the costs of fighting so why can’t the leaders on each side look ahead and work out a sensible arrangement? Well, what is good for the people is not necessarily good for the individual leaders. Netanyahu’s constituents, for example, surely want peace (on their own terms) but are unwilling to make near-term sacrifices (settlements, water access, etc.) for long-term gains. Most of us, sadly, are relatively short-term maximizers, hoping others will bear the long term costs instead of us. And how about Hamas? They seem divided between those who want to pursue a moderate course and those whose own importance and well-being is tied to prolonged extremism. Abbas and Fatah have tried to play a moderating role and gotten precious little in return. That, of course, strengthens the arguments of hardliners. So why has Abbas been able to achieve so little (and lose so much — especially Gaza to Hamas).
One problem is that short-term electoral gains in Israel promote a tough stance. Another is the failure of US leaders to be creative in advancing the prospects of peace. Early in Obama’s term he gave a speech in Cairo that seemed to mark a sea-change in the US approach to the region. Sadly, as on so many other fronts (e.g., health care) the president was long on talk and short on follow-up action. And now, with Abbas saying he will step down (of course, he may be bluffing — anyone care to build a data set and use the online game to forecast what is likely to happen to Abbas and the prospects of elections in Palestine in January!) what does this say about the strategic need to threaten and cajole to get serious discussions moving forward.
For Netanyahu, negotiation at the expense of settlements seems like a no-brainer — Palestinians don’t vote in Israel so their interests are unlikely to shape his calculations. OK, so let’s throw some ideas out there.
One of the allegedly big issues between the contending sides is the “right of return.” Now under a UN resolution from the late 1940s Palestinians born in what is now Israel would have a right of return. Of course, we are 60 years beyond the resolution so the number of people it actually covers is probably pretty small. This seems really to be more a symbolic issue than real, at least under international law. Anyone in the international community willing to compensate those who fall under the resolution if they agree not to return? Just a thought. Later I will take up Jerusalem and other territorial issues.
Secretary of State Clinton is in the mid-east urging Israel’s government to stop the construction of further settlements and working on measures to build trust between the two sides. Israel’s Prime Minister obkjects that there should be no preconditions imposed on Israel before agreeing to start negotiations.
Give me a break: start negotiations! These tired old phrases and maneuvers have been going on forever. Negotiations start and stop every couple of years — must be seriously think that they always go back to square one. Isn’t it time for some fresh thinking instead of the same old same old?
I propose a simple step that serves the interests of both sides. Share tourist tax revenue. When there is violence, that revenue falls to a pittance. If each side policies itself, Palestinian income could rise 20 percent or more at no cost — and real gains toward peace — for the Israelis. I lay out the calculations in The Predictioneer’s Game if you want to see the details. This is a completely self-enforcing mechanism. Israel’s government might have the right self-interested incentives under this proposal to check settlements. The Palestinian leadership will likewise have the right incentive to check extremism on their side of the border. They don’t need to sit and negotiate to achieve this. Each can unilaterally declare its preparedness to put tourist tax revenue into a common pool to be distributed according to the current population distribution (about 60% Israeli and 40% Palestinian). Check out the details.
Dear Madam Secretary of State, please let’s bring some new ideas to the table. Land for peace and peace for land don’t work, won’t work, and shouldn;t be expected to work. They lack what game theorists call credible commitment. Please let’s not waste time on what we already know won’t be successful.
Sorry for the long silence. I am being kept pretty busy on the book tour circuit. Having just returned from London and Dublin, I thought you might enjoy an article from the Irish Times. It seems the author of the article, starting out as a skeptic, put my car-buying approach to the test in Ireland and found that he saved a bundle. You can find the article at
On another note, feverish work is moving ahead on putting an executable apprentice version of the game directly on the web so you don’t have to download anything. The web version, which could be up as soon as Friday but more likely early next week, will also allow you to enter data directly into the program. The downloadable version will, therefore, be taken down and stop working by the beginning of November. The online version should prove easier and more convenient to use.
Buying a car soon, check out the method in Predictioneer’s Game or just read the Irihi Times article discussed above.
Sometimes I am asked to pick stocks which I do with about the same rate of success as monkey with darts. My models are about strategic interaction in situations in which negotiation is possible and so is the threat or realization of coercion, bullying, or simple pressure. A properly functioning market does not have the threat of bullying and coercion as a characteristic. Now to be sure, regulators engage in pressuring, cajoling, coaxing, and sometimes beating up the misbehaved or those alleged to be misbehaved. So, it is possible to use models like mine to forecast market movements in particular sectors that are subject to changes in regulations or government oversight. That’s mostly the domain of concerns for hedge fund managers but it is an appropriate arena for the sort of forecasting I do. Straight markets, not so much!
Maybe someone out there will be stimulated to try her or his hand at designing a stock market game. Meanwhile I hope you are enjoying the apprentice version of the game. We are working at a web version and then the downloadable will go away. It is set up anyway for limited time use — I really want to get the web version up and running.
Health care reform is certainly one of the hottest policy questions around. Who wouldn’t want someone else’s help covering the costs of illness and accident? And who wouldn’t want to see less of our economy being spent on expensive treatments, doctor visits, and prescription drugs? But how can we add up to 15 percent of the population – 45 million people – to the roles of the insured and cut costs? Can there really be such huge economies of scale that by providing quality care to more people it will cost less. Seems like what people used to describe as voodoo economics back in 1980. That’s not to say cost should trump the people’s health but hey, let’s be frank about the costs as well as the benefits.
It could be true that there would be savings although the government’s independent assessors of costs don’t seem to think so. Probably that’s okay if we are all healthier but that may be a BIG IF. I am sure you have noticed that government programs often start off modestly and then swell to gigantic proportions. Let’s think a bit about this seemingly unintended consequence of legislators’ good intentions.
Often when people speak about the “unintended consequences” from government programs, for instance, what is really going on is that they didn’t work out the strategic reactions to those programs. Then, when those reactions happen, they are described as “unintended consequences.” They may be unintended, but they are no product of happenstance. With some game theory reasoning lots of those “unintended consequences” turn out to be easily foreseen. Not to be too cynical, but I suspect that politicians sell this notion of “unintended consequences” to justify their narrow, self-interested motivations to get re-elected, even when doing so may come at great long-term social or economic costs to the rest of us. How else do we explain the fact that politicians just about always underestimate the actual costs of programs they promote? Let’s consider Medicare for a moment as illustrative of what might happen after we get some form of quasi-universal health coverage in America.
Medicare was introduced by Lyndon Johnson in 1965. It was supposed to be a small program. Today, however, it’s humungous. All the while that it grew, the cost of going to the doctor, buying medicine, and staying in a hospital has gone through the roof. Lots of folks see today’s high medical costs as the result of a loss of values by physicians, insurance companies and drug makers. While the old family doctor with his (doctors were almost always men back then) black leather case came to our homes and spent time talking to us, having a cup of coffee, and tending to our mending, today’s doctors seem to be just another breed of greedy businesspeople. And so greed becomes the explanation for the runaway costs of medical care. Few of us ever tie any part of the high cost of health care to popular programs like Medicare, let alone to ourselves.
Like with so many government programs, people quickly came to think of government-sponsored medical subsidies as something they were entitled to. They wanted more and more of it, so they demanded that Medicare cover more and more. Politicians obliged by expanding Medicare. They would have to want to commit political suicide to do otherwise. Meanwhile people keep complaining about the high cost of health care as if the two are unrelated. Somehow they think that subsidized care does not change the demand for medicine, increasing demand maybe even faster than the supply of doctors, hospitals, and pharmaceuticals can grow. The change in demand, of course, is an easily anticipated and calculated strategic response by most of us to reduced out-of-pocket costs. It’s not much different from what happens when the grocery store has a sale on steak or ice cream. Make something cheaper and more of it gets sold. The result in the case of a sale on medicine’s out-of-pocket cost is more people chasing an insufficient supply of quality medical care.
We know what happens when demand rises faster than supply: prices go up. So we have two potential sources of greater medical costs resulting from Medicare. Because of government subsidies more people can buy medical care than was true before Johnson’s program. That was the intended consequence. As planned, Medicare has encouraged greater consumption of medical care, undoubtedly a good result for us as individuals and for society as a whole. But we cannot escape the laws of economics. Higher demand, all else being equal, means higher costs. 45 million more insured Americans doesn’t seem to translate into reducing health care’s bite out of the national economy.
As Medicare’s good intended consequence kicked in, what could we expect if demand for doctors, drugs, and hospital space not only went up, but if it rose faster than their supply? Not only would the total spent on good health go up but so would the cost of individual doctor visits (along with their getting shorter to make room so that everyone could see the limited supply of physicians) and almost everything else associated with medicine. Certainly that was not Lyndon Johnson’s or the Congress’s intent, but anyone who has had Economics 101 (which, come to think of it, most of our lawyerly representatives in Congress probably have not) could work out that an out-of-pocket price reduction (via the government subsidy) would increase demand. Until supply catches up with demand, prices rise. As it is hard for supply to keep pace with demand when the range of things being subsidized continues to expand, it is hard for the growth in supply to overcome the price pressure created by more and more demand. (Does this remind you of oil prices? It should.)
Could the growth in the cost of medicine have been foreseen, even as in many instances the real – inflation-adjusted – earnings of physicians fell? Of course it could. When someone else – your neighbor, for example – pays the taxes to cover a big part of your own medical bills, you are more likely to go to the doctor, more likely to demand high-end tests, and more likely to want cutting-edge procedures to make sure you get the best care. Who, after all, doesn’t want the best care from the best doctors in the best medical facilities? None of us can be faulted for wanting good care and certainly one idea behind Medicare was to improve just such care – and it worked.
Patients may see the full cost of their care when they get their medical bill, especially if they read all the fine print, but then they also see the part that is deducted from that full cost because Medicare paid for it. Naturally, patients feel happy that they don’t have to pay the whole bill themselves. Indeed, they wonder how anyone could afford such a high bill and complain that the government must help out more. That, of course, is what creates the political pressure to expand government subsidies. Rarely do we think how much smaller the bill might be if no one were subsidized – not the patient, not the doctor, not the hospital, and not the pharmacy. Most us think the bill would be the same and thank our lucky stars that at least we are getting some help courtesy of our representatives in Congress. Each of us is right at the moment we pay our bills, but we are wrong about what the cost would look like if government subsidies didn’t exist. Would they be as low as their pre-Medicare or Medicaid prices? Surely not. There have been great strides in medical technology since the 1960s and the benefits that result are expensive, but not as expensive as the growth in medical costs.
Patients rarely stop to ask how much less their taxes would be if they didn’t pay Medicare taxes out of every paycheck, whether in sickness or in health. We forget that the average American spent about $143 on medical care in 1960 and more than $5,600 in 2003. Incomes only rose by about fifty percent (adjusted for inflation) over that same period. And few of us have an incentive to ask whether there are cheaper treatments for what ails us that are just as effective as the expensive stuff our physician – a beneficiary of Medicare spending – recommends. Even fewer of us think about all of the medical services that get provided needlessly because the direct, out of pocket cost to the consumer is relatively small. Even little things like taking ibuprofen instead of aspirin. For lots of purposes they work equally well and aspirin is generally much cheaper. Or how much fraud such a large, bureaucratic program engenders. The Government Accounting Office estimated in 1998, for example, that Medicare fraud and overcharges cost an extra $12.8 billion dollars that year. The upshot, because we think about benefits from subsidies without paying much attention to their costs, is that government programs grow rapidly as long as out-of-pocket costs are subsidized. We think about that out-of-pocket cost as all that we pay. Medical service doesn’t cost less because part of the payment is coming from a third party, it just means others are paying for you and me when we consume a service and – the part we tend easily to forget – we pay for everyone else too without being able to control how much they demand or whether they use the service prudently.
In game-theory terminology what this all means is that program growth is endogenous or, in plain English, it is a foreseeable strategic consequence of the situation that has been set up. Government offices are crowded, services are poor, and demand for programs keeps growing. All the while, our elected officials routinely grossly under-estimate what their programs will actually cost. They ignore the fact that these programs create new expectations and demands. As a result – and it is a result that could be anticipated – the programs inevitably grow, along with complaints that the service is inadequate and can be fixed only with ever more money and more growth. Meanwhile, no matter how much more effort goes in, the complaints keep on piling up; they do not diminish and no one ever seems convinced that the problems they were created to address have been fixed.
Health care seems to be a hotter political item today than it was when Lyndon Johnson gave us Medicare. Retirement benefits are a bigger issue today than when Franklin Roosevelt gave us Social Security. School policies today are a bigger issue than when public schools were being debated in the nineteenth century. Police services and prison services today seem less adequate than in the past even though we spend more, incarcerate more, and patrol the streets more than just about ever before. These are all easily anticipated – and maybe even good – consequences of public benefits. We want others to help make our lives better and we don’t mind asking them to pay more to do it – and as long as we see more benefit than cost from subsidies we will demand more of them.
Game theory compels us to try harder to foresee the consequences of our actions. It makes us think about what is endogenous – what is a strategic choice – and what is not. It draws out crystal clear differences between what we can control and what we cannot. Of course, we can think about these things without game theory, and many of us do, but we are compelled to think about such matters when we work through the strategic logic of any game situation. There’s no putting your head in the sand with game theory – you cannot ignore the strategic fallout of decisions because you simply cannot solve games without thinking through how others are expected to respond to your choices.
Thanks for the nice comments on the book and the Jon Stewart appearance. It was lots of fun — he is smart and charming as well as very witty and quick on his feet.
There is little that is secret about my algorithms, claims by the History Channel and some others notwithstanding. It is true that I make some arbitrary assumptions to turn theory in to practical use and those few practical assumptions are unpublished but then there is no reason anyone should think my arbitrary hand waves to make things work are better than those by anyone else. For my older model you can get the details from Bruce Bueno de Mesquita, Predicting Politics (Ohio State University Press, 2002) or European Community Decision Making (co-edited with Frans Stokman, Yale University Press, 1994). For my new model see the paper I gave at the International Studies Association meeting in New York in February 2009. There are lots more publications by me on the construction of the models in numerous peer reviewed journals but I think the citations above should keep any of you who are interested pretty busy.
The new model, in somewhat simplified form, is available on the Game page of this web site if you want to play with it. That’s all for now. A little later I hope to post some thoughts on health care.
