With Straits Exchange Foundation Chairman Chiang Pin-kung (江丙坤) and his team of negotiators just back from the third round of cross-strait talks in Nanjing, it is time to dwell a little on the concept of game theory.
A branch of applied mathematics, game theory is an attempt to understand human behavior in a strategic context, wherein a party’s success is contingent on the decisions made by another party.
In the context of negotiations, game theory contains four possible outcomes that guide decision-making, which can be represented in the matrix commonly known as the prisoner’s dilemma: win-win, win-lose, lose-win and lose-lose.
How negotiators weigh their options and how they negotiate is predicated on whether they intend to play a zero-sum or non-zero-sum game. In a scenario where a party chooses the zero-sum option, the negotiator seeks to maximize the payoff to the detriment of the other side. In other words, benefits are seen as a finite resource and the winner takes all.
The non-zero-sum approach to diplomacy, on the other hand, sees benefit as a common, unquantifiable good rather than a finite resource that must be parsed out unequally. This approach sees cooperation, rather than competition, as a means to ensure that both sides benefit.
Knowing the other side’s intentions before approaching the negotiating table, therefore, is a crucial precondition. When both sides adopt a non-zero-sum approach, we see the emergence of what is known as the Nash equilibrium, which, in simple terms, refers to both sides making the best decision they can based on the assumption that the counterparty will do as much.
While departing from the Nash equilibrium (in other words, playing a zero-sum game) in the knowledge that the other side has adopted a non-zero-sum strategy can result in a greater payoff (that is, win-lose), a Nash equilibrium offers the greatest assurance that the payoff will be spread equally (that is, win-win).
Understanding the implications of game theory in the context of international relations is of capital importance and underscores the need for awareness of the counterparty’s intentions before entering negotiations.
Of course, when game theory leaves the realm of mathematics and is applied to real-world interaction — as in the case of cross-strait talks — matters become far more complex because they are multidimensional. On paper, the prisoner’s dilemma is two-dimensional; it is an isolated system.
In international relations, however, negotiations simultaneously involve the tactical and the strategic, meaning that the payoff accrued from the outcome of negotiations is not isolated but part of a system.
What this means is that while it is possible to approach negotiations on a specific topic at the tactical level, once we take a step back, they can also be part of a grand strategy. One implication of this duality is that how one assesses payoff at the tactical level may differ from an assessment at the strategic level.
While this conclusion may seem self-evident, it is often overlooked. Taken into account, however, it can serve to explain the behavior of parties during negotiations.
Beijing’s approach to negotiations with Taipei can be better understood if the simultaneous interaction of the tactical and the strategic are taken into account, and the outcome of the talks in Nanjing — the signed agreements — clearly indicate which items China sees as tactical, and which it sees as strategic.