Moving Beyond A Zero-Sum Approach

In many situations, acting for oneself as well as the group gets the best results.

Shyam Ponappa   |   January 6, 2022

The start of the year is a good time to consider getting past fractiousness. For this purpose, insights and concepts from Game Theory when applied to most interactions in daily living are truly astounding. One major insight is that barring conflict and competitive games and sports, in recurring, purposeful interactions between people and entities, the interests of parties dealing with one another are often not diametrically opposed, even when there is competition between them. The implication is that one party’s gain in an interaction need not be entirely at the other’s cost. These are the non-zero-sum situations that lend themselves to cooperation and collaboration. In these circumstances, the best outcomes arise when parties do what is best for themselves as well as the group. Paradoxically, if parties act only in their own interests, ignoring the potential for collective gains, the outcomes often are short of optimal. Whereas if parties cooperate and collaborate in a convergent way, optimal outcomes are possible.

The difficulty is that this philosophy is apparently at odds with our processes and practices in politics, governance, and administration, which seem to emphasise dissension, divisiveness, and factionalism. This appears to be true to some extent in civil society. Is it possible to have these dichotomous approaches flourish simultaneously in any society? Perhaps not. Yet, for galvanising major change, the convergence of society and a transformation towards cooperative and collaborative culture are imperative.

Non-Zero-Sum Situations & Potential For Gains

This concept is usually presented as numbers in tables with rows and columns and associated mathematical formulas as shown in Chart 1, 

Source: https://en.wikipedia.org/wiki/Coordination_game

For formulas: https://en.wikipedia.org/wiki/Cooperative_game_theory

but it can also be presented graphically as in Chart 2.  

Chart 2

Visual representations are sometimes more intuitively understandable. Take for example, corporate acquisition with cooperation and coordination. Consider two companies with complementary strengths, negotiating for one to acquire a stake in the other. The example could be of a manufacturer buying a stake in a supplier for existing or new markets, or diversifying into a new market. The Acquirer A in Chart 2 wishes to pay no more than a reasonable price, shown as a reduction in the asking price as one moves to the right on the horizontal axis. The Seller S wishes to limit the percentage stake sold along the vertical axis with its relinquishment of control, while obtaining a sizeable investment to enhance its capacity. If both sides stick to their “indicated” and “offered” prices at or near the origin, N, the transaction would mean a low investment for a low stake, which would be least beneficial for both. Neither party can improve its position independently from this low-value equilibrium, known as the Nash or Non-Cooperative Equilibrium.

Goal: Stable Cooperative Equilibrium

Any point on the chart towards the right or the top gives both higher gains, although only some will be acceptable to both. The Acquirer gains with less reduction in acquired shares (lower on the vertical axis) for a given investment. Its responses are shown on the line NA (A’s “response function”) extending to the top right. The Acquirer’s preferred price is at the point labelled Acquirer’s Bliss Point. The Seller gains as the stake sold for that price is reduced, up to its ideal Bliss Point, shown on its response function NS. Indifference curves radiate from each Bliss Point, and the points where these curves touch each other (are tangential) represent acceptable settlement points. The line through these points is the acceptable Contract Curve, and the actual settlement point on this curve depends on the negotiation. Any settlement point gives the Acquirer a higher price cut than at N, while the Seller gives up less shares than at N. Both gain.

This is all nice and utopian, but is it of any practical use? The chart shows that objective analysis can highlight the potential for better payoffs, whereas efforts to maximise selfish gains while ignoring common interests results in the lowest payoffs (Nash Equilibrium).  That is, in non-zero-sum situations, if players cooperate, any coordinated settlement will be better for both than the Nash Equilibrium. 

Game Theory has its limitations, of course, and some question its basic legitimacy because of assumptions not related to this example, such as rational decision-making, with complete knowledge and understanding. For practical applications in group functioning and processes, however, its principles and concepts relating to cooperation are invaluable. There are also a number of other real-world applications, such as for matching medical residents with hospitals in the USA through the National Resident Matching Program,¹ shared railway infrastructure costs in Europe, or the brilliant Spliddit.org not-for-profit portal, for apps to help users allocate costs or profits in instances such as sharing rent, fares, credit, goods, and tasks. The benefits of collective action begin with cooperation, or acting with others in one’s own interests. It extends with collaboration, or acting with others on collective goals.

These simple principles can be learned through methods in experiential learning, which employ cooperation and collaborative learning methods. They can be grasped and internalised by young children as well as by adults.² In this sense, this approach can be facilitated throughout people’s lifetimes. While it is undoubtedly beneficial to learn these in early childhood, people can be introduced to it later, in college or at work, and still learn and apply it well. Given its potential for a cultural transformation, it needs national and state championing through dedicated effort, and a curriculum to inculcate these practices in everyone, from early kindergarten to high-school and beyond, through college and Continuing Education at work and in life.

Without transforming society from a neutral or contentious to a collaborative stance, expecting public-private-partnerships to work is unrealistic. Communications systems enable widespread introduction of these changes, with relevant skilling and training as never before. The question is whether we can step up to the opportunity.

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Shyam (no space) Ponappa at gmail dot com

1. National Resident Matching Program, USA: https://www.nrmp.org; 

Railways Infrastructure – Europe: http://dm.udc.es/profesores/ignacio/gptren160499.pdf; 

Cost or profit allocation for rent, fares, credit, goods, and tasks: http://www.spliddit.org/

2. Collaborative Experiential  Learning - Indicative Article: 

https://www.researchgate.net/publication/327527752_New_Methods_for_Collaborative_Experiential_Learning_to_Provide_Personalised_Formative_Assessment

List of Articles with Hyperlinks

1 FX Reserves & Infrastructure

[Finance/Economics]

2 The Rewards of Excess: Benefits of Growth Exceed Costs
[Finance/Economics]

3 Learning from Our Champions
[Goals, Tasks & Project Management

4 Organizing Aviation (Competition, Open Skies ...and Bust?)
[System (Re)building: Organization & Systems] 

5 Organizing: Biofuels (More Energy for Ethanol and Biodiesel!)
[System (Re)building: Organization & Systems] 

6 Thinking Big - Scale, Ownership & Results
[System (Re)building: Organization & Systems]

7 Organize - by the Judiciary? (Dispute Resolution & India's Body Politic)
[System (Re)building:Organization & Systems]

8 A Tale of Two States (Gurgaon vs Bangalore)

[System (Re)building: Organization & Systems]

9 Organizing PSU's: Performance is the Key
[System (Re)building: Organization & Systems]

10 Organizing Ourselves - 1: Systematic Reforms (It Can Be Done Here)
[Goals, Tasks & Project Management]

11 Safeguarding India's Capital
[Finance/Economics]

12 India’s Growth Engines: Services + Manufacturing (Breaking the Mould)
[Goals, Tasks & Project Management]

13 Prioritization & Planning: A ‘Ballooning’ Approach (A Wish List for India's Dream Team)
[Goals, Tasks & Project Management

14 Governance Successes (Bull's Eye for Governance)

[Goals, Tasks & Project Management]

15 Organizing Renewables- Next Steps for Biofuels)
[System (Re)building: Organization & Systems]

16 An Investment Fund for India
[Finance/Economics]

17 Integrated Area Planning (Spatial Planning) [Infrastructure: Rural & Urban]
[Goals, Tasks & Project Management]

18 Tata's Corus Buy-A Game Theory Analysis
[Game Theory: Collaborative Gains]

19 Productivity Reforms: Government from Ruler to Facilitator (Beyond India's Tipping Point)
[System (Re)building: Framework & Principles]

20 Productivity & Regulatory Constraints (Opportunities for the Left)
[System (Re)building: Framework & Principles]

How to Revive Auto and Telecom Sectors

Illustrative action in key economic areas. 

Shyam Ponappa    |    October 1, 2020

The government can take some immediate steps to assist economic recovery. This involves: (a) Policies for citizens to benefit from public resources (land, minerals, spectrum, water), not exploiting them for any government, person, or special interest (b) Systematic, end-to-end design and execution to completion (c) Cooperation and participation in organisation. The examples below are for automotive manufacturing and communications.

The Automotive Sector

The drop in automotive sales from over two years ago indicates considerable loss of momentum. Figures for vehicle registrations from FY2018 demonstrate this. (See table).

The Covid lockdowns constrained sales even further. Vehicle registrations in August 2020 were 1,188,087, a reduction of 27 per cent from August 2019 (1,623,218). Meanwhile, Harley-Davidson announced the closure of its plant in India, and Toyota expressed concerns about high taxes. A year ago, Ford moved most of its manufacturing into a joint venture with Mahindra. Even in a business-as-usual cycle, because of this sector’s contribution to manufacturing and across sectors, there are legitimate expectations of government support. This is to mitigate negative effects cascading through the economy, the aim being to prevent job losses and reduced employment prospects.

The loss or shift of focus from India to other manufacturing locations warrants urgent action. Tax cuts after shedding ideas such as treating small cars as luxury goods are necessary, but not sufficient. Reducing goods and services tax (GST) from 28 per cent to 12 or 5 per cent is just one step. The revenue deficits can be monetised by printing currency, to be extinguished over time through increased tax collections from higher sales. A vehicle scrappage policy at this time may not be opportune, as it may be ineffective, and can cause undue hardship.

Freeing Our (Manufacturing) Potential

Other measures can be taken besides tax cuts. Because there are so many, the emphasis here is on elements of industrial policy. It does not, however, minimise the most critical issue of social policy, which has been undermined as much as in 1975 during the Emergency, and desperately needs amends.

Reliable infrastructure is one requirement to drive manufacturing productivity and broader economic potential. Manufacturing and service enclaves must be made to work, with stable infrastructure and social conditions. This is essential for local companies to thrive, as well as to attract international investment, and to generate spillover effects.

Past experience suggests we should focus on fewer, well-conceived undertakings in the near term, while building for the longer term, like how telecommunications grew from 2004-2011, the national highways development projects from the late 1990s, and the earlier success of the Anand Cooperative.

Model SEZs

Take, for example, the over 200 special economic zones. Is it not in our interest to make a real success of two or three pilots as intermediate objectives, achieving a few that work, instead of many that do not, and then seek replication?¹ After unbiased selection of locations (the most difficult part), governments (Central, state and local), enterprises, and citizens have to be persuaded to get them to work right, to have them built up and serviced with stable infrastructure and governance, including competitive tax policies, not getting sidetracked by real estate speculation or assuaging political constituencies. Only then would it make sense to replicate them based on the experience and results.

While state and local regulations and practices affect these, the overarching laws and policies necessarily emanate from the Central government. Also, multiple government agencies are involved in any significant infrastructure policy, as with telecommunications, which requires national policies on spectrum allocation and assignment, rights of way and other regulations, standardisation, dispute resolution and penalties.

Additionally, the laws have to be made to work. The widely held fiction that making a statement is tantamount to achieving all that is stated simply has to be given up.

Taxes on Public Resources

The real issues here are stable policies, taxes, and contracts, resulting in investments that succeed. The recent arbitration award for Vodafone against the government’s claim of taxes with interest of over Rs 20,000 crore is, one hopes, an end to proceedings conceived by the United Progressive Alliance and pursued by the National Democratic Alliance. Allowing for retrospective changes means that any agreement can be changed. It is in our interest to accept this award as a lesson in upholding contracts, avoiding retrospective changes, and reviewing and modifying laws prospectively.

An equally unreasonable litigation pursued by successive governments since 2005 is the adjusted gross revenue (AGR) case for the government’s revenue share from telecom operators. The Supreme Court’s 2019 ruling upholding the previously overruled government claim is very damaging for overall economic prospects. Parliament needs to frame legislation that defines AGR as the TDSAT ruled in 2015. The government could then apprise the Supreme Court of the change in policy, and renounce its claims. Together with accepting the arbitration award, this will not only change the prospects for telecom and broadband, but for investments and prospects across the board, although the rest remains to be done to show that it pays to invest in India, by investments being profitable. Perhaps the government will consider acting on these steps.

Measures such as regulations for spectrum bands of 60GHz, 70-80GHz, and 6GHz, are easier to address for immediate results. The government can formulate the regulations as was done for 5GHz, using the US FCC model with some modifications. Then, there are the policies only the Central government can initiate, on issues such as consortiums for shared infrastructure and manufacturing, that need to be given shape and form to make them realities.

Above all, we need the powers-that-be to give up their durbar-style of operation, and start applying the principles of cooperative action and shared infrastructure with all stakeholders, to improve collective outcomes.²

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Shyam Ponappa at gmail dot com

1. SEZs failures: (a) Reuben Abraham: India needs to copy China's Special Economic Zones better 

(b) Meir Alkon, Princeton: Do SEZs Induce Developmental Spillovers? Evidence from India's States

2. Elinor Ostrom: Governing the Commons, Cambridge University Press, 1990. 

Making The Most Of The Cash Flow Crisis

                       

     

                                        Humankind cannot bear very much reality - T.S. Eliot

The government needs to design incentives for greater cooperation, with disincentives to discourage defection.

Shyam Ponappa  |   December 1, 2016  

The economic arguments apart, some observers see the demonetisation/currency replacement initiative as a political strategy, similar to the United Progressive Alliance (UPA)-I’s instituting the National Rural Employment Guarantee Act (NREGA, later renamed Mahatma Gandhi NREGA). MGNREGA was famously successful in reinstating the UPA in 2009, although having beggared the treasury and wrought many unintended consequences through unthinking or even intentional mismanagement. It’s too soon to tell what the election effect of the currency replacement exercise will be despite local election results from Maharashtra and Gujarat. The drastic reduction of cash will induce severe constraints in economic activity for months together with the attendant consequences, unless the need for cash is alleviated.  For now, three weeks later, there seems to be reasonable popular support for the move.

The social and economic aspects of these policies lend themselves to analysis through the frame of Evolutionary Game Theory (EGT). EGT studies how patterns of strategies associated with groups affect competition for resources through repetition. Originating in biology, it is applied to many fields. Its focus is the frequency or spread of strategies in a population in competition and natural selection, and not only the nature of the strategies. EGT explains altruism in life forms as a benefit for a species, whereas survival of the fittest at the individual level leaves little room for altruism.  This explains why people act for the common good despite competition and natural selection, when selfish alternatives offer greater gains.

EGT models help us understand the motivation for group affiliation and altruism affecting behaviour that results in our living conditions and environs.  Of particular interest in our context is a basic assumption that strategies that lead to high pay-offs are transmitted within a population either through a learning process (culture) or through evolution. EGT helps to identify such strategies, as also to understand how additional aspects, such as population structure, affect the emergence of such strategies.

From a public-interest perspective, demonetisation and the MGNREGA are social engineering initiatives aimed at changing the structure and processes in society. In other words, apart from redistributing income, their purpose is to develop a culture that supports cooperative processes for a well-functioning society, e.g., with clean environs and sound infrastructure as well as clean money. A problem with the approach in both has been that they are perceived not so much as strategies crafted for the common good, as gamesmanship for political gain. In the process, the public interest objectives of social stability, productivity and well-being appear to have been sacrificed for partisan gains.

While political aims may be the unstated primary motivation and an unavoidable aspect of reality, both involve major structural changes to influence processes affecting large populations. EGT tells us that while human societies rely on mechanisms that promote cooperation, natural selection in unstructured populations favours defection over cooperation through higher pay-offs to defectors. However, with appropriate corrective mechanisms, natural selection can favour cooperation. But without special incentives for cooperation and compliance, combined with deterrents against defection/non-compliance, natural selection increases the dominance of defectors, driving co-operators to extinction. It follows that the benefits from cooperation and compliance must be attractive (high) so as to result in a virtuous circle leading to dominance by co-operators in a population, while the costs must be kept relatively low.¹ Urgent attention is therefore needed to design such benefits and reduce costs.

Apart from the financial effects of these policies, their aim is, presumably, or should be, to engender behaviour in a virtuous circle to help create a preponderance of co-operators in society. EGT shows that direct reciprocity (A helps B when B helps A) is an effective way of inducing cooperation in repeated interactions. However, researchers working together from Harvard, the University of Amsterdam, and the Max Planck Institute have found that it takes a combination of two factors, namely, direct reciprocity together with a degree of population structure such that it leads to greater interactions between co-operators than between co-operators and defectors, to work synergistically in creating high levels of cooperation.² They report that this combination yields much higher levels of cooperation than achievable through reciprocity alone in unstructured populations. They observe that this combination of reciprocity and some structure is very similar to actual human interactions, which are typically repeated, and occur in not very rigid yet not entirely unstructured populations. They conclude that if reciprocity in behaviour is combined with only a small amount of assortment (e.g., so that altruists interact more often with altruists than with defectors), then natural selection favours the behaviour typically observed among humans (in well-functioning societies): High levels of cooperation implemented using conditional strategies.

To make the most of the demonetisation “stick”, the government needs to design the right combination of incentives to induce greater cooperation, with disincentives to discourage defection. These are needed to help accelerate the adoption of cashless transactions to the extent feasible, given our levels of connectivity. It is also desirable to train change agents to seed co-operator populations, and to design supportive processes, including efforts to induce a degree of structured interaction that clusters co-operators to increase their number in sub-populations. This would be akin to the commercial equivalent of good agricultural extension.

Two aspects need resolution for cooperation to have a reasonable chance of success:

One is improving connectivity for communications for cashless transactions. This needs new approaches to resolve rural, semi-urban and urban communications problems, with government working with industry and experts to bring about genuine breakthroughs.  Otherwise, cashless transactions remain an urban phenomenon, and the hinterland is left out.

The second, and most urgent, is the restoration of economic activity flows. This requires resolution of the induced cash flow problems.  It is not clear how, but without that, there is a risk of a cash flow crisis overwhelming the rest. 

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Shyam (no-space) Ponappa at gmail dot com

1. “A simple rule for the evolution of cooperation on graphs and social networks”, Ohtsuki et al, February 10, 2006, Nature:

http://www.nature.com/nature/journal/v441/n7092/full/nature04605.html

2. “Direct reciprocity in structured populations”, Van Veelen et al, May 3, 2012, Proceedings of the Natural Academy of Sciences:

http://www.pnas.org/content/109/25/9929.full.pdf

Three Management Concepts for 'Better Days' [Three Ways to 'Better Days']

In 2015, the government should adopt three management concepts that will help realise its objectives.

Shyam Ponappa  |  January 1, 2015

Having heard a lot about vision and goals, how do we proceed? We have the "what", we need the "how". The objectives have been well stated, but the processes are yet to be spelt out. Three concepts that should be drawn upon are systems thinking, cash flows supported by engineering and financial management, and alignment of efforts through cooperation and coordination.

Systems Thinking

Consider the "system-mapping" diagram shown of driving a car along a road.

This chart shows the elements and processes involved: "stocks" like velocity and distance depend on past system performance; "flows" represent changes in stock, with the rate of change being captured in the speedometer, and the distance in the odometer; the accelerator and brake are "converters" that affect acceleration or deceleration (negative acceleration); "connectors" show how parts of the system influence other parts. Stocks are influenced only by flows, while flows can be influenced by stocks, other flows or by converters. Converters may be influenced by stocks, flows or other converters if they are not at the system boundary. The source and the sink are the beginning and the end of the system (go to www.business-prototyping.com/step-by-step-tutorials/introduction-to-system-dynamics/stock-and-flow-diagrams/ for more details).

This is an example of "systems thinking", an approach that emphasises interrelationships instead of only linear effects and end-to-end processes instead of stand-alone events or circumstances. Traditional analyses focus on individual elements, whereas systems thinking emphasises the interactions of all discernable elements that result in outcomes under consideration. For instance, the perspective shifts from product prices, for example, for cereals, power or fuel, to life-cycle costs, including operations and maintenance. (For a brief overview, see the above website.)

Without this approach, the articulation of desirable visions is no more than rhetoric. In economics, "cheap talk" is a promise made with no penalties for non-performance, or "costless communication". "Cheap talk" has its uses, for example, in helping to create a collective vision and unite efforts to that end, but it needs to be followed up with real planning and execution with the commitment of resources to go beyond and establish credible delivery.

Take the very laudable Swachh Bharat campaign for cleaning up one's local environs. While it's excellent that it has been forcefully voiced by the prime minister, there's no visible public evidence of systemic initiatives that address the fundamental elements like sewerage, garbage separation and composting in homes, and incineration, which includes "simply" enforcing existing laws. It's a two-fold challenge: one, of enforcing existing laws, for example, against the open burning of waste and harvest stubble, and two, of dedicating skilled, multi-disciplinary resources to work towards developing integrated solutions, including simple enforcement against acts like littering. Instead, the initiative appears to remain at a superficial level of photo-ops of sweeping waste from one place to another, instead of addressing ultimate disposal.

Process Flows & Cash Flow

A second aspect where change is urgently required is in dealing with problems of growth arising from obstructions in process flows. These may relate to material, or to the conversion of material to cash. The range covers all economic activities, for example:

• The conversion of mineral resources through mining;
   
• Administrative or regulatory impediments regarding communications in areas such as spectrum use, network access and rights-of-way;
   
• Constrained cash flows from lower demand combined with high costs, as in the manufacture of durables, commodities such as sugar, or construction - not to mention manufacturing in general for the "Make in India" campaign.

The crux of this aspect relates to the conversion to cash. The reason flows are critical in this context is because, aside from "resolution" by bankruptcy, even problems of stock (or oversupply) have to be resolved through flows, that is, cash flows, whether by disposal of assets provided market conditions can support reasonable cash yields, or operating profits from higher volumes and/or lower costs, resulting in the turnaround of non-performing assets (NPAs).

Such solutions need an understanding of the underlying engineering or other processes, and of financial management, that is, the tightly coupled lockstep of profit and loss and balance sheet that leads to cash flow. This understanding is critical for effective management of any self-sustaining activity as a going concern. Much of our society, including many in politics, the executive, the judiciary, the media and lay persons, appear either to not understand these principles, or to opt for shortcuts for near-term gains, as in the distribution of sops for elections.

Cooperation on Aligned Goals

The third aspect is cooperation and alignment of efforts to achieve common goals. Credible leadership is perhaps the most important for this form of team building. Effective leadership combined with due attention to processes can help elicit team thinking and performance that aligns group outputs to common goals to achieve results that are "better than rational". Evidence from studies such as of forest management in Maharashtra show how communities cooperate to manage forests as common-pool resources through community control.¹ To paraphrase Elinor Ostrom, this requires building conditions in which reciprocity, reputation and trust overcome the strong temptations of short-run self-interest, by investing in monitoring and sanctioning each other to reduce the probability of free riding.²

However, there's a catch to this upside potential: "Experimental evidence suggests that humans have specialized circuits for understanding threats, as well as recognizing bluffs and double-crosses."3 This loops back to two choices: rhetoric versus actual systemic coordination and reforms, and inclusive versus divisive leadership. The latter calls for a hard choice between divisive electoral strategies for winning the post but resulting in a "zero-contribution" model, versus a potentially higher yield from non-partisan leadership that inspires and persuades the majority to pull together for greater gains.

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                                                                     Shyam (no space) Ponappa at gmail dot com

1. Rucha Ghate, Suresh Ghate and Elinor Ostrom: www.sandeeonline.org/uploads/documents/publication/941_PUB_WP_64_Rucha_Ostrom.pdf

2. wwz.unibas.ch/fileadmin/wwz/redaktion/wipo/Vorlesungen/2012/PolEcon/Ostrom98.pdf

3. Leda Cosmides and John Tooby: www.cep.ucsb.edu/papers/aer94.pdf 

Changing Our Game

Adopting 'co-ordination models' like the Stag Hunt instead of pursuing narrow self-interest helps reduce contention and improve outcomes.

Shyam Ponappa / Sep 05, 2012

Consider the handling of irregularities in spectrum allocation and in coal mining rights. Instead of swiftly ring-fencing problem areas where there are allegations of culpability supported by prima facie evidence, then striving for good policies going forward, the ruling coalition and the Opposition are in a war of attrition. What began with the United Progressive Alliance’s turning a blind eye to the spectrum awards has turned into the Bharatiya Janata Party’s heedless flailing to tear down their opponents. Meanwhile, the confusion created by the pronouncements of the Comptroller and Auditor General and previously of the Telecom Regulatory Authority of India has vitiated conditions for constructive reform. Any solution that fails a populist screen is likely to be guillotined in the streets.

Contention versus co-operation


There seems to be quite a contrast between our manifest contentiousness and our apparent friendliness. From our chaotic ways in traffic to dealing with each other and with our surroundings more generally, often, self-centred, short-term opportunism appears to override our better nature. As evidenced in the coalgate stand-off in Parliament, or our inability to establish adequate infrastructure, this cuts across all levels of individuals and groups. The irony is that no one gains, except the perpetrators and supporters of rip-offs and stand-offs. They, too, gain only in the short run, unless they’re caught out. In the long run, everyone is worse off except the rogues who get away.

How did we get to this self-destructive state, and how might we get out? Insights from game theory could provide some perspective. One stark fact is that our interactions are predominately driven by self-interest that leads to contention, on the lines of a Prisoner’s Dilemma,1 instead of a co-operative group- or common-interest model like the Stag Hunt.2

The two models are described briefly below.  For those who want to skip the description, read on after the next two paragraphs.

Prisoner’s Dilemma

Two men attempting a burglary with a weapon, A and B, are caught, with insufficient incriminating evidence for the burglary. They are questioned separately and not allowed to communicate. If both deny the burglary, they escape a 10-year sentence and will be imprisoned for two years for possession of a weapon. A is told separately that if B pleads guilty and A does not, B will get a reduced sentence of four years, while A will get 10. So A has an incentive to confess and get four years, too. A is also told that if he confesses, he can go free, while B gets 10 years. Therefore, the logical choice for A is to confess. The same logic applies to B. So, both confess and get four years, instead of both denying and getting only two years. The logical trap is that acting in one’s self-interest without communication and co-operation leads to a worse position.

Stag Hunt

A group of hunters agree to wait for a stag in their assigned positions. If one sees a hare and shoots at it, the stag takes flight and the group loses out. The group and individuals gain most if individuals stick with their commitment and get the big prize. However, individuals may be tempted to defect by a less risky, smaller pay-off like a hare.

[The original story implies that hunters must stay in their positions.  If they are tempted to chase after a passing hare, the hunt fails (if the stag comes by their post).]

Logical trap: Self-interest leads to contention and lowest equilibrium

In zero-sum games like cricket, tennis or football, where the total pay-off is the same no matter who wins, one participant gains at the expense of another. In most real-world encounters, however, players can improve their outcomes by co-operation and co-ordination. In other words, many everyday situations can be likened to non-zero-sum games, where one party’s win is not necessarily another’s loss. If individuals (or teams/groups) pursue their self-interest without co-operating and co-ordinating with other players, the pattern is like the Prisoner’s Dilemma, and a logical trap leads to a position of lowest equilibrium (the Nash Equilibrium). This position results from each player/group making the best decision that he/she/they can while taking into account the decisions of the others, and no one can act independently without worsening their position.

Co-ordinating better outcomes

By contrast, if players can (a) co-operate and (b) decide through effective co-ordination, everyone gains. Examples are centrally sponsored projects executed in Opposition-run states – for highways or power, for example – or the backing of political parties for India’s 123 Agreement with America on nuclear co-operation.

Can we escape a logical trap and contention by adopting models that elicit co-operation and co-ordination? Game theory suggests that models based on trust and co-ordination like the Stag Hunt work for a big prize (the stag). The question is whether it is possible to move to a co-ordination model and, if so, how to do it. While there are no simple fixes, the University of Vienna’s evolutionary game theory models hold out some promise through providing insights into how patterns of co-operation can spread in populations.3

There’s also the long, slow haul of structured education and training in collaborative problem solving. The techniques that need incorporation in our curricula from junior school through higher education, vocational training, and at work, are co-operative problem solving as an approach, and project management as a method. The latter starts with a clear definition of goals and objectives, followed by standard operating procedures covering the gamut of the logic of process flow for tasks, setting milestones/sub-objectives, critical paths, and individual and group responsibilities on timelines.

A second aspect where governments have to step in is institutional design — boldly initiating systems and processes after eliciting convergence in each sector from all stakeholders on sound plans in the public interest. Driven by goal-directed project management, this requires systematic action braving populist pressure and distractions.

These initiatives would significantly improve India’s ability to act in the public interest.

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shyam (no space) ponappa at gmail dot com

1 http://en.wikipedia.org/wiki/Prisoner’s_dilemma

2 “The Stag Hunt and the Evolution of Social Structure”, Brian Skyrms, 2004: http://bilder.buecher.de/zusatz/22/22362/22362426_lese_1.pdf 

3 VirtualLabs, Christoph Hauert: http://www.univie.ac.at/virtuallabs/ 

[Since moved: http://wiki.evoludo.org/index.php?title=Evolutionary_Games_and_Population_Dynamics]

Evolutionary Dynamics – Cooperation and Defection - from the link below:

Cooperators provide a benefit to other individuals at some cost, while defectors attempt to exploit such common resources. This leads to a classic conflict of interest between the individual's and the community performance - and hence the dilemma. The game dynamics then determines the relative frequencies of the different strategies in a population.