## Tuesday, March 18, 2014

### A Game Theory Perspective on the Ukraine Crisis

Given the amount of noise issuing forth on how much truth we are getting concerning the Crimean annexation and the Ukraine crisis overall, I decided to examine events from a game theory perspective.  I consider this to be a more objective way of getting at the real picture, as well as explaining why certain moves have been made and why others might be – say by both ‘contestants’ – the U.S. and Russia.

I also want to make it clear that this approach removes any noise (say from conflicting claims) to do with whether neo-fascists or neo-Nazis were involved in the Maidan uprising. (A huge bone of contention on the web irrespective of which forums one visits.) In the end, whether they were or not is irrelevant. An examination based on non-cooperative game theory really shows what unfolded and why.

We need to begin by looking at some basic definitions and terms:

First, a ‘game’ means any mutual interplay between one or more players- which could be individuals, corporations or nations – in which one stands to gain a larger payoff than the other.

In each such game, the respective players (in this case, the U.S. and Russia) make choices from respective  sets: S i   (where in this case i= 1,…n). In addition we have n-real valued functions (in this case n = 2) described as:

P i = S1 X  ………S n ® R   (i= 1,…n)

Where R defines the Cartesian space.  The set S i     is called Player i’s ‘strategy space; while P i  is called the “payoff function”. We take S i  to be the set of actions available to the character called Player i, and we insist each Player must choose some action – and even a “non-action” can be included in the set since it can provoke a response in the other Player.  Note there will also be some actions that have joint consequences,  and that  P i basically measures Player i’s assessment of the consequence.

Other basics:

Cooperative Game: One for which some kind of binding agreement is possible

Non-Cooperative Game: One for which no binding agreement is possible.

Strategy: involves a set of rules S i which defines which action is taken at each point in the game.

A ‘strategy pair’ i.e. (a*, b*) is such that a* represents A’s best move when B plays b*, and b* represents B’s best move when A plays a*.

In a Nash Equilibrium, no player has an incentive to change strategy.

A “Dominant strategy” is optimal no matter what the other player does.

A sequential game is one which evolves in time and for which Payoffs P i  are exchanged  based on sequential actions S i, eventually leading to a denouement- or a stalemate.

A perfect Nash equilibrium describes a best response equilibrium for a sequential game for which  all threats are credible.

The U.S.Russia “Game”  for Preserving Spheres of Influence:

In this game context, I look at a 20-plus year sequential game played by the U.S. vs. Russia and for which the subtext and most basic assumption is the “sphere of influence”.  This is taken to mean the geographic and geo-political domain in which a nation’s actions are justified and wherein it exhibits maximal latitude to determine its own self-interest especially in matters of national security.

The most thoroughly studied solution concept is the Nash equilibrium (see e.g. the book, The Essential John Nash, Princeton University Press, 2002,  Ch. 6 ‘Non-Cooperative Games’ – facsimile of Nash’s Ph.D. Thesis, and Ch. 7, presented in regular book font format). This is the outcome that results when the players maximize their own payoffs – taking the other player’s behavior as given.

In the game space graphic shown, I place the Nash equilibrium for the U.S.Russia contest just 2-3 yrs. past the point where in 1991, Mikhail Gorbachev refused to use force to keep the Soviet Union together and allowed Germany to peacefully reunify. In exchange, US President George H.W. Bush agreed not to expand NATO’s borders east, and certainly not to Russia’s borders.

This translated into a credible 'win-win' (analogous to both persons in the classic "Prisoner's Dilemma" refusing to rat on each other), and I argue that this equilibrium – if it had been preserved- would not have led to the current U.S. – Russian standoff.

Alas, the U.S. broke faith and began to play the “dominant” game (i.e. changing strategy to grab a seeming payoff and benefit  - breaking the then Nash equilibrium), egged on by its defense contractors like Lockheed Martin and others to grab former Soviet States like Latvia, Estonia etc. – suck them into NATO, and ply them with weapons sales.  The reason for adopting the dominant posture is still up for discussion, but according to blogger Eric Margolis, “Washington regarded Russia as a broken-down, third world nation beneath contempt”.

One may also invoke the classic American attitude evident after  any and all games, including sports like football, that if you don’t win you’re a LOSER!  Thus, unseemly behavior often follows. In the case of the U.S. with this high and mighty “we’re the winners” attitude it led to progressive expansion of NATO eastward.  This happened successively and sequentially over time with Bush Sr. and then Bill Clinton reneging on the deal and pushing Western influence eastward –to the Baltic states (Estonia, Latvia, Lithuania), then Romania, Bulgaria, Kosovo and Albania, then to Georgia.

By this time, a whole sequence of payoffs P i had fallen the Americans’ way, with little or nothing to be shown for Russia, other than Western encirclement which it has dreaded since the time of Peter the Great.

By 2008, Russia had had enough of the one-sided game and began to respond via its incursion into the former Soviet state of Georgia and the seizure of South Ossetia.  This is depicted in the graphic as an aggressive move upward and U.S. retreat. Bush could basically do nothing but wag his tongue, send a couple warships in the vicinity but not prevent Russia from getting its own, long overdue payoff.

The U.S. did not learn from this, and where a new Nash equilibrium might have been available, it instead continued – probably at the behest of neocons still in Obama’s administration – whereupon NATO offered membership to Ukraine.  Since the payoff here would be enormous, with NATO basically now on Russia’s ‘porch’ – Vladimir Putin had no choice but to respond aggressively, as Col. Lawrence Wilkerson observed on Chris Hayes All In show some two weeks ago.

Bottom line: the U.S. had overplayed its hand, or in the case of the game theory scenario – run up too many ‘payoffs’ without allowing much of any to its rival. In any game theory contest, when two players actually wield nearly equal power (and the Russians have it with their large standing army and nukes) this was a most unwise thing to do.

Basically then, as Eric Margolis puts it:

Having serially violated Russia’s traditional sphere of influence, it was inevitable Moscow would riposte.”

Even Col. Wilkerson noted that only a fool or ignoramus could not have seen it coming.

In a Game theory context, the next best move for the U.S. in view of its multiple payoffs so far in this sequential game, is to STFU and go home. It has expanded NATO to damned near the Russian borders and Russia raised nary a hue or a cry in the fifteen- odd years this has been going on.  To now demand Russian retraction or regression on top of the huge U.S. gains would amount to folly. It would border on seeking to humiliate Russia after winning nearly every interim bout in the sequential game contest.

Give it up already, and let Russia have the Crimea  (which would represent a near Nash equilibrium)without any further bombast, yap or empty threats. (In any case as The NY Times has noted, (March 9, p. 10) many nations have regarded Kosovo as a precedent, irrespective of whether Obama and the U.S. "believe it's not". Kosovo declared independence in 2008 and the U.S. under Gee Dumbya Bush recognized it, along with Britain, France and Germany, aka the Neolib trio.  Quoting Dimitri Simes, from the Center for National Interest in D.C. (ibid.):
"Independence was accomplished despite strong opposition by a legitimate, democratic and basically Western-oriented government."
Which shows how the hypocrisy in interpretation, coupled with rank jingoistic nationalism, can pervert the best minds leading them to believe Crimea's independence and Kosovo's are dissimilar. But this is what happens when one fails to see world events through a global lens, and uses only a nationalistic (or Neoliberal)  prism.
Amazingly, since the U.S. has already grabbed the Lion’s share of “payoffs” (see the payoff function in relation to 'actions'), it still comes out ahead.  The question is whether it is humble and sober enough to grasp that, or whether hubris will get the better of it again. In that case a de facto Nash equilibrium could well be disturbed and see Russia responding by invading eastern Ukraine and likely claiming it as a needed 'buffer'.  Obama, tell the neocons to cool it, or take a hike!

Footnote: Another game theory take appeared in the New York Times ('Crimea Through A Game Theory Lens', March 16, p. 6) but in my opinion missed the boat. It examined the situation in Ukraine purely from a U.S. hegemonic perspective, and how to stop Russia from making assorted moves and expanding American power, i.e. "there may be a net loss of credibility, when the world is uncertain where American self interest lies."  Which is exactly the problem! It lies all over the damned place, artificially projected to empire dimensions. This, instead of where it ought to be: in its own backyard tending to its own security and not minding the business of the whole freaking world!

and: NY Times Manufactures More Half Truths on Ukraine:

Unknown said...

I think it's relevant to say that the reason the US may be expanding it's sphere of influence is in the motivated by the perception of security the idea being that if the US becomes incredibly powerful. So powerful that it will be dwarf its nearest competition 10X over. No one will dare do anything to the US for fear of reprisal.

Copernicus said...

This is exactly so, and also where the Neoliberal world order (of global capitalism) meets neo-conservatism. The latter basically postulates a "unipolar" world where one "superpower" acts as de facto cop of the world. The main purpose is to quash any remote problem areas as well as ensure no other power seeks to contend or compete.

This unipolar power order is also needed to ensure the spread of Neoliberal capitalism to all areas of the globe. In the minds of the Neoliberals, the world is rendered safe when all geographical areas are held to the same market standards and mandates - which naturally also means they accept the expansion of Neoliberal states (i.e. in NATO).

The problem is the Russians don't see it that way. Historically they have always felt threatened by foreign expansion - especially of military alliances - right to their borders. This is why the game theory perspective is so apt because it accounts for why the West is basically neutralized until it understands events from Russia's viewpoint. That includes breaking the Bush Sr. promise not to extend NATO "one inch to the east".

The West also needs to bear in mind the Russians are very serious on where they're drawing the line re: Neoliberal - NATO expansion. They have reserved the right to use limited nukes if they feel they might be overwhelmed by conventional forces, see e.g.