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12/16/2002 06:35:00 PM | Timothy Game Theory and Lott Ok, I'm glad I can finally put to use some of the game theory I was required to take last year, and address Nick's claim that a decision-tree would lead the Republican party to believe that Lott's threat is not credible. Nick is right that after Lott is no longer majority leader, he has no additional incentive to carry through with his threat to leave. But spite can be very powerful! Nick is assuming all actors are rational, or at least he's not factoring in psychic costs and benefits. It is possible that Lott is a type of actor who is bluffing, or will back down. But it is possible that Lott is a type of person who is spiteful, non-rational, and/or will quit without going through all the rational calculations. Or he might think that most of the benefit from being in the Senate comes from being the leader, and whatever he has left as losing that is not worth as much as the psychic benefit he gets from spiting the party. But here's the larger point: The Republican party cannot be sure what type of actor Lott or how he will make his decision if he loses his post. Therefore, they have to take into account the risk they might lose the Senate against the risk that Lott's being leader will hurt Bush and the Republicans. Without Lott's threat, Republicans have very little to lose by dumping him. With that threat, their calculations of expected utility change, and hence the power of the threat to at least slow down calls for him to be dumped (so he can ride it out...) Nick is right that Lott cannot credibly signal what type of actor he is, or what his preferences are. But this asssumes Lott is entirely rational and that the GOP knows Lott's preference structure: do Republicans really want to risk it to find out if Lott is bluffing? perma link |
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