Game Theory and the outcome of the Russia-Ukraine conflict?

Many fine brains, including some Nobel laureates, have been trying to figure out how the Russian invasion of Ukraine will end. None, so far as I can see, has tried to recall a sub-discipline of economics and maths which was devoted to such predictive endeavours. So let me remind everyone.

Back in the day when economics wasn’t the namby-pamby discipline it has become now, it used to apply a lot of advanced mathematics to make predictions about behaviour and outcomes of individuals and groups. It was the study of strategies.

One of these applications was called Game Theory, so named after the great insights provided by three mathematicians of the 1940s and 1950s. They were John Von Neumann, Oskar Morgenstern and John Nash who married maths and economics.

Thus game theory was born. The different situations were called games.

The theory sought to analyse strategies of entities — called players — competing for a prize. The idea was to see which was the best strategy: cooperation or non-cooperation.

The Ukraine Game

Of particular relevance to the current situation in Europe are two old games. One is called ‘Chicken’ and the other is called ‘Grim Trigger.’

In ‘Chicken’ the two players rush at each other, head first. The first to swerve loses. If neither swerves, both die. If both swerve, both survive and share the prize.

In ‘Grim Trigger’ everything goes well till one player decides to ‘defect’. That is he or she stops cooperating which is exactly like when a kid runs off with his bat rather than let everyone use it.

Everyone ends up worse off. And the kid who ran off is punished by permanent exclusion.

The Ukraine affair provides the perfect illustration of both games — that too sequentially, which makes it even better.

The two players are Russia and the US. In the chicken phase, they were rushing headlong at each other and it was the US that swerved, allowing Russia to win the first game by invading Ukraine.

Then the second game, grim trigger, started in which the Russian defection — cessation of cooperation — has caused the US to impose massive sanctions on Russia. Grim trigger is an unforgiving game on which there is no going back to cooperation until one side loses completely.

What we are seeing now, with Russia and Ukraine holding talks in Minsk, is an attempt by Russia to get back to cooperation. The US, for the moment, is refusing to cooperate, which means the roles are reversed.

This is leading Russia to issue nuclear threats and to increase its coercion in Ukraine in the hope that this will make the US change its mind and that the two can work out a settlement that basically ensures that NATO forces don’t enter Ukraine.

So how will it end? Will both sides now swerve off and take what they can get, or will the US follow the grim trigger strategy to the end?

The answer will be known in the coming week when the full benefits of cooperating and the full costs of not cooperating become known, namely, no NATO in Ukraine versus unaffordable energy prices in Europe.

The US by the way has no costs other than loss of such face as it has left now. So it could continue to play grim trigger.

In doing so it runs the risk of turning it into an n-person game with China siding with Russia and the EU turning against the US. After all, its politicians also have to win elections.

Once it turns into an n-person game, game theory predicts there will be no winners. The only issue then is who loses the most.

And so, like Czechoslovakia in 1938, it’s Ukraine that will be sacrificed. The thing is this could have been done if both sides had swerved in the first - chicken - game.