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A man walks into a bank and shows the teller that he's strapped with dynamite. He announces that if he does not receive $10,000 in cash that he'll detonate the explosives, killing himself and everyone else in the bank.
- There must be a set of actions that the actors can take in order to make the desired outcome happen. In our example, there must be a way in order for the bank to give this man $10,000.
- The threat, in this case the threat to explode the dynamite, must be credible. If the bank does not believe that the robber will carry through with his threats, then the strategic precommitment will fail. In this instance, the robber may have to work to convince the bank that he really will blow himself up if he does not receive the money.
What does any of this have to do with New Year's? Virginia Postrel's A Nobel Winner Can Help You Keep Your Resolutions shows the link between game theory and New Year's:
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WHY make New Year's resolutions? If you need to start a diet or get up earlier in the morning, why wait until Jan. 1? Why not do it today? New Year's resolutions do not make any rational sense.
While perfectly logical, that analysis misses the point. New Year's resolutions help people cope with some of the most difficult conflicts human beings face.
So argues one of the economics profession's greatest experts on conflict, Thomas C. Schelling, who shared this year's Nobel in economic science for, in the words of the citation, "having enhanced our understanding of conflict and cooperation through game-theory analysis."
Professor Schelling, now a professor emeritus at the University of Maryland, is famous for his work on conflicts between nation-states, particularly those with nuclear weapons.
One of his best-known ideas is "precommitment." One party in a conflict, he demonstrated, can often strengthen its strategic position by cutting off some of its options to make its threats more credible. An army that burns its bridges, making retreat impossible, is a classic military example.
Others involve strong diplomatic commitments. By passing a law saying the United States will defend Taiwan if it is attacked, for example, Congress gives future administrations less flexibility in dealing with a crisis, but the threat makes an attack less likely.
In the early 1980's, Professor Schelling applied similar analysis to individuals' internal struggles, seeking to develop what he called "strategic egonomics, consciously coping with one's own behavior, especially one's conscious behavior."
Please Continue to Page 2 of "How Economics Can Help You Keep Your New Year's Resolutions".
