How a game theorist would solve the shutdown showdown

October 4, 2013
James Dean prepares for a game of Chicken in "Rebel Without a Cause". (Warner Bros.)
James Dean prepares for a game of chicken in "Rebel Without a Cause." (Warner Bros.)

Daniel Diermeier is the IBM Distinguished Professor of Regulation and Competitive Practices at Northwestern's Kellogg School of Management; he also holds appointments in law and political science and directs Kellogg's Ford Motors Center for Global Citizenship. A political scientist by training, he has written extensively on formal political theory, game theory and other topics relating to the modeling of political institutions. We talked on the phone Thursday afternoon; a lightly edited transcript follows.

Let's say you had to model the showdown between President Obama and House Republicans. Where would you start?

We have a tendency to think about this as a negotiation between a couple of big players. There's Boehner on one side, and Obama on the other side, and now the question is who wins. It's like the Cuban missile crisis. That's our image.

There's some of that going on, but things are more complicated here. The difficulty is that if you're the president, you're not negotiating with one person, but with a group of people — the House or the Senate, depending on what the issue is, and that makes things a lot more complicated. That's number one.

But also, you're dealing with people who are public officials, and the so the game theory questions of what their reversion point or their outside option are all depend on public opinion. You have these two sides, plus you have a battle in the field of public opinion and a negotiation going on at the same time. So it's a far more complicated problem.

The other point is that as dramatic as this is, the types of situations that we see right now are really baked into the U.S. system of government. They are unfortunate and scary, but they in some sense follow by design. That's something where models can really help clarify things.

Take the following example. Let's say a legislature has to decide on the budget, the annual budget. In the U.K., the way it works is the government is of a parliamentary type, and in most cases — not always, but in most cases — the cabinet and the ruling party are aligned. That means there is very little in the way of negotiation going on inside the chamber. All the decisions have been made previously in the party or the cabinet. The chancellor reads the budget, and the whole thing is over in three, four days. That's typical in the U.K. and typical in other parliamentary democracies like Germany, the Netherlands or Sweden.

In the U.S., the president and Congress are elected effectively at different times. Their political futures do not depend on each other, and that creates incentives to not negotiate with each other. One of the consequences is that the likelihood a bill passes is far higher in the U.K. than in the U.S. This failure to get stuff done, to pass budgets, is a systemic feature we can understand. It comes back to the fact that in a parliament, the legislature and government are aligned by design, whereas in the U.S. there's this conflict between executive and legislature. That's what the founding fathers wanted, and it has pros and cons. It makes it much more difficult to pass a law, and some people like that.

So looking at confrontations like the current one on the shutdown, and the coming one on the debt ceiling, one analogy I've heard people use is the game of chicken, where two cars are driving at each other and the first one to swerve away loses. Swerving is worse for you than not swerving, but if nobody swerves then you die. Similarly, John Boehner doesn't want to "swerve" (pass a clean continuing resolution or debt ceiling increase) and Obama doesn't want to "swerve" (sign a CR that defunds Obamacare, or sign a non-clean debt ceiling increase), but if neither swerves, then the shutdown continues and/or we default. Is that a fair analogy?

That's the most basic way to think about it. When we think about the Cuban missile crisis, it kind of has that flavor. You could also call it a war of attrition, which is a more dynamic version of that. Those are appropriate analogies to a certain extent, but what they're missing is the specific nature of the U.S. political system and how public opinion plays a critical role in how damaging it is to be intransigent. It's not helpful for understanding the structural reasons why this is happening.

The really critical question is whether the Republicans are going to stay together. There's a spectrum, of course, depending on your district and what your primaries will look like, from more extreme to more moderate, but they've been more able to maintain a level of party discipline that's unusual compared to the '60s, '70s and '80s. But at what point will the moderate Republicans peel off? Will they stay together, or will they feel so much backlash in their districts at this point, and hear from their constituencies, that the political calculus just doesn't work anymore? That, to me, is the big question.

To a large extent that will depend on how effective the Obama administration is in shifting public opinion. It depends on  (a) how catastrophic they think breaching the debt ceiling is and (b) who they're blaming for that. So I think this bargaining game will be determined by how successful the two sides are in shifting public opinion.

Who do you think is doing better at managing that so far?

So far it's going better for the Obama administration. You have these incidents of people being unable to get into national parks or Arlington National Cemetery, the Army/Navy games jeopardized. There are things where people say, "Ooh this is very bad," or "This is crazy." These are important because they give salience to the issue. The sequester didn't have anything like that. There wasn't anything symbolic that really caught people's attention and gave a sense of, "This is really wrong. We need to stop this." These small things, though they're economically not very significant, can shift public opinion because they reinforce how serious this is.

Part of the problem is that it seems hard to identify what exactly the House Republicans want. There was an amazing quote by Rep. Marlin Stutzman (R-Ind.): "We’re not going to be disrespected. We have to get something out of this. And I don’t know what that even is."

It's hard for me to understand whether it's posturing or what. It's very hard to disentangle. Originally it was over defunding Obamacare, but when you go to, "You're disrespecting me," what that means strategically is, "I'm really not compromising, because the stakes are even higher." If that's real or a bluff is hard to say.

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