Game Theory and the Fiscal Cliff

Game Theory and the Fiscal Cliff

The Cliff Game
As income inequality has grown, many elected officials have little interest in the needs and preferences of lower-income people, an economist writes.

6 Responses

  1. According to economist Nancy Folbre, the game theory model is a fitting analogy that describes the recent behavior of elected officials in dealing with the fiscal cliff crisis. Issues such as the adjustment of the tax rates and the debt ceiling were debated in a manner that portrayed a cat and mouse game, when they should have jointly fashioned out a win-win outcome for all in an ideal democratic process. Both parties sought outcomes that would clearly label one a winner and the other a loser. With both not knowing each other’s moves, they increase the chances of a stalemate. The compromise from the deadline imposed gridlock came at an economic cost to society. The end of democracy as we know it becomes only a matter of time if both parties continue future negotiations in this toxic approach.

  2. I have found an article which deals with the same type of idea this article details. The fiscal cliff and the decisions made by our politicians is an extremely important issue for our country at this time. It is unfortunate that bipartisanship has taken a backseat to party bias and backbiting. The article, found here generally agrees with the outlook which your author has on the way politicians have and continue to deal with these important issues. Unfortunately they all seem so blinded by their party’s political ideals they cannot see how close what their true beliefs really are to each other. This problem extends even to the President himself, who seems to be just as caught up in where the line is drawn in the sand as the rest of the politicians in Washington. At some point I feel it will eventually fall to the people of this nation to stand up and let Washington know that they all need to find a way to work together in the future.

    This article in The Economist agrees with Nancy Folbre’s analysis of the game theory playing into the recent fiscal cliff talks, but with a slight difference. For the Republicans, any deal that involves higher taxes would hurt them politically, whereas the Democrats would have a far better outcome politically depending on how they broker the deal. Unlike a typical game of Chicken, this impasse results in different penalties for both the players. Andrew Steele also points to the importance of repeated games in Game Theory and how budget making is one example of that. With Democrats having the upper hand in this round, the Republicans will fare better in the future if the Democrats want to lower taxes on key constituencies. Steele also highlights the affect of the political environment in which the game is played on the outcomes.

  4. Folbre’s use of the game theory to describe the fiscal cliff negotiations by Congress does not tell the whole story. Two economists, Marie Laure Cabon-Dhersin and Nathalie Etchart-Vincent, conducted an experiment “The puzzle of cooperation in a game of chicken: An experimental study” in which they investigate the influence of agent heterogeneity and payoff structure on cooperative behavior. The two agents considered in the experimental game of chicken were the unconditional cooperators and strategic cooperators. The former always cooperate and the latter cooperate only when its interest is at stake. Their findings showed two interesting observations; the more strategic cooperators in the set, the higher their willingness to cooperate. Lastly, the defection rate is low when cooperation is highly rewarded. This behavior by the participants towards each outcomes and possibilities shows a non-expected utility maximizer acting in an unpredictable manner.

  5. The article topic is a pure research problem. In the article, Nancy Folbre is studying the behavior of lawmakers on public policy negotiations because she wants to find out how applicable the game theory is to the recent fiscal cliff debate in order to help readers understand how the different outcomes of a position influences elected officials’ decisions on political issues.

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