N.B.: Is the concept of fair division possible in Game Theory?

Herve Moulin: Yes, I think it is. In fact,  it has been presented since the beginning of Game Theory, the beginning of modern formalisation of situations of games, which is based on  the two seminal works of John Nash. One of them is the famous Nash equilibrium, which is the most important and applied concept of the strategy games. The other seminal paper of Nash, which was a discussion of bargaining situation and discussion of how to arrive to divide two parties surplus and at the same time reach an agreement to a fair compromise between the two opposite positions, was immediately at the origin of the theory. For the first time, it was proposed as an axiomatic model, as a model of what would be a just compromise, and more or less in the same article what would be the gains, the protocols of bargaining that could arrive at such solution. Thus, in this sense, Game Theory inspires a lot of the actual arbitration processes that take place when, for instance, certain lawyers specialize in helping their clients to reach compromises. It is so-called “final offer arbitration”, which is a nice twist on the issue of the negotiations in which, if we engage in this kind of negotiation, what we commit to — is to present our arguments and our two positions before a judge or some third party, who is impartial. Then, this third party is committed to choose one of the two proposals that we have put on a table. Therefore, this kind of twist in the negotiating game creates incentives for better compromises because if I maintain a very extreme demand, the judge will probably dismiss my demand. This sort of things has been there from the beginning both protocols to achieve fair and compromises and also ways to think systematically about what is a fair compromise.

N.B.: How does the knowledge of the game theory affect your daily life?

Herve Moulin: To be specific, I must say that for me the first time when I realized that game theory had a real grasp on some important day-to-day issues was through the book of Thomas Schelling called «The Strategy of Conflict» ,which was from the late 60’s. It is a marvelous illustration of how arguments of threats, counter threats and credibility arise in huge number of simple real life situations. Whether inside the family when parents threaten the children but actually do not want to carry out the threat because the threat would help them more than their children.

In addition, there were very general issues of nuclear deterrence, which was the big issue at the time the book was written, late 60’s. This was a kind of the height of the Cold War. Thus, this sort of vision under theory, which, in fact, is Thomas Schelling’s Nobel Prize. Once you realize how these very simple games carry in them the way to understand simple, elementary conflictual situation and how to, in fact, avoid the wrong outcome, here I am thinking of the prisoner’s dilemma and things like that. I mean, this sort of little template has been, I think, helpful to more than one person, you know, I speak for myself, but I suppose nowadays lots of people know what is prisoner’s dilemma. It helps them to think a little bit beyond their own interest and see where is the interaction of the interest and probably what they could do to avoid the wrong outcome.

N.B.: Talking about prisoner’s dilemma. You mentioned that a lot of people know about it nowadays. Would you say that the game theory transforms with the change in the people’s perspective? Does the game change when more and more people learn the rules of the game?

Herve Moulin: Yes, it does. I think that the realization of the strategic element in interpersonal  relations has an important effect on the way we think about those things. Clearly, the part of the social sciences where the Game theory has been the most influential is economics. And because precisely in the overall thinking about economics, it has given tools to analyze situations of industrial conflict between firms pricing, conflict in competition for market shares, marketing strategy and all these things which, of course, had been there before the concepts of game theory when people did not need the tools of game theory to think about what to do strategically. But now the fact that it has became so much part in everyday language in economics makes it very demanding. I think it helps people in society to think differently.

N.B.: The ice caps are melting and the battle for Arctic territories is the hottest geopolitical conflicts of the century. How would you or can you even apply game theory for solving this issue, knowing that there are currently five countries in the game?

Herve Moulin: I think this is a very good example as I was talking about Thomas Schelling and politicians of that sort who have been very important in the ways of theorizing also, about the Cold War, which was the biggest geopolitical question of that time. And now we are talking of something completely different, but still significantly potential conflict in which there are clear elements of cooperation play because, I think, all the nations there realize that it would not be in anybody’s interest to start a war on the issue, but, at the same time, they also want what they would perceive as a fair compromise. Thus, it will be difficult to really give a structure to this big question, which is sanitize and independence of the day-to-day politics. I mean, this is going to be a big political problem. However, I think in the negotiation of international treaties we sometimes see methods which are essentially come from game theory or its developments as mechanism design. There is an example which is very typical for what was called in the late 90’s «The law of the Sea». «The law of the Sea» was a project for a treaty which would essentially regulate the way various nations and private companies can exploit the mineral riches at the bottom of the oceans. In particular, in the international parts of international waters there are some riches which right now are not exploited because it is still very costly to do but, naturally, in some not too distant future they’ll probably could start being exploited. Correspondingly, there was the issue to balance the interest of mankind who are jointly owners of these oceans in international waters and also the incentives for companies who can profitably extract those minerals and how would they be able to regulate that. The proposal came up in the law. The law, unfortunately, was never signed because the United States didn’t sign it. As a result, it was just a project. Nevertheless, idea was the following: once a company identified a rich area, in which some interesting digging could  be made and would be profitable, then that company would have to propose, to define a specific area at the bottom of the sea. The international agency, let’s say the UN, for instance, would then have the right to split the area in two and reserve one part for future exploitation by other parties and one part for the private companies. In other words, I think the company itself would define very precisely in area and cut it in two parts. Thus, it defined two areas side by side and then would let the agency choose which of the two parts would be reserved for future exploration in the general interest and which part the company could start to exploit. That was a simple application of this idea of “divide and choose” in that context, which could have been a very possible way to run those things. Of course, I am not making any speculation on the way the Arctic and Antarctic. Antarctic is also an issue potentially, but I think the Arctic is more global. Therefore, that is where, probably, some advisors on negotiation techniques and will be called for. I think that their influence, if they have some, will be beneficial hopefully.

N.B.: China is one of the main players in World Trade nowadays. How can there be a fair negotiation with them when China has essentially more economic power than any other player on the market?

Herve Moulin: Well, now we are talking here of the big issues of international trade for which, from the point of view of academic discussion of international trade, it has been very important to use the language, terminology and concepts of game theory to describe much more precisely and understand better the impact of certain policies and so forth. That has been a big progress on the academic side when it comes, however, to questions like the one you raised: that China has a very special role as both the biggest economic unit, but also the one — on which many other economies depend in interrelated way. Thus, there I think we reach a little bit the limit of what game theory plainly can do to help. Without any doubts, now we see what is going on, we see the way politicians are trying to deal with the first steps of what could become a big problem. So, let’s hope it is not going to become a geopolitical problem, you know as intense, as the Cold War has been at some points. However, I am afraid that the discussion of international trade is not at the moment really capable of raising at this level of market share. Because here the issue, that you have, is that you really have a number of players and then three or four very strong and very big ones around but no clear relationship between them in terms of a well-defined game and not even in the context of many International agencies. For that reasons, I think this is a good example where it is fair and decent to say: «Well, for now game theory is not going to be very painful immediately».

Интервью взял: Андрей Надеинский

Транскрибатор: Екатерина Ярёменко

Редактор: Мария Кучеренко, Валерия Кука, Элен Гаврилова

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