Let’s Be Honest About Republican Options On The BudgetTHEY’RE LIMITED

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Dominant Strategy

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What’s A Dominant Strategy?

Having a dominant strategy doesn’t mean you can’t lose.

It means you have one strategy that offers the best results no matter what moves your rival makes.

Strategists look for a dominant strategy for themselves and for the their rivals.

If you have a dominant strategy, use it.

If your opponent has one, assume he’ll use his.

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Strategy Matters

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Game Theory Is Serious Science

“A game is a situation of strategic interdependence: the outcome of your choices (strategies) depends upon the choices of another person or persons acting purposively.” –Avinash Dixit and Barry Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life

War planners, smart political strategists, and successful business people study and apply game theory in most of their decisions.

John Nash, profiled in the movie A Beautiful Mind, won his Nobel Prize for work in game theory.

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Game Theory Reveals Political Options

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Democrats Have Dominant Strategy on Budget

Democrat Barack Obama was recently re-elected President

Democrats increased their majority in the US Senate

Republicans control the House of Representatives

Polls favor the Republican position on budget, spending, and taxes

History shows that government shutdowns hurt Republicans

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Republican Options Are limited

In the next slide is as chart that game theorists and strategists commonly use.

It shows the choices for each party in Congress regarding budget, spending, and taxing.

The numbers in the upper right-hand corner show the relative desirability of that strategy to Democrats. The number in the lower left-hand corner is the same for the Republicans.

You will see that the Democrats have a dominant strategy, but the Republicans do not. That’s because Democrats control 2/3 of the bodies.

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Democrats triumph;

Republicans avoid blame

Democrats win but vex Obama;

Republicans share credit

Democrat agenda blocked

in House; Republicans take

blame.

Democrats lose most of agenda; Republicans look

fiscally responsible and

tough

Support Obama Completely Compromise

Go along with Obama to some degree

Attack Obama

Rep

ub

lican

s

Democrats

2nd

2nd

1st

3rd

3rd

4th

4th

1st

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Democrats Support Obama Completely; Republicans Go Along

In this situation, Obama’s budget passes. If it is successful, Democrats get the credit. If the economy tanks, Republicans share some of the blame.

This is the best outcome Democrats can achieve, and the second-worst for Republicans.

Democrats triumph;

Republicans avoid blame

1st

3rd

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Democrats win but vex Obama;

Republicans share credit

Democrats Compromise; Republicans Go Along

Here, the Democrats negotiate with Republicans. Perhaps they replace a tax increase with loophole closing. A budget gets passed, the fiscal cliff is averted, and both parties look statesmanlike.

This the second best outcome for both parties.

2nd

2nd

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Democrats lose most of agenda; Republicans look

fiscally responsible and

tough

Democrats Compromise; Republicans Attack

If Democrats offer a compromise but Republicans stay on the attack, Republicans win. The fiscal cliff is averted, but Obama backtracks on promises to his base.

This is the best outcome for Republicans and the worst outcome for Democrats. It is also the least likely outcome because Democrats, controlling the White House and the Senate and having just triumphed in an election, have no reason to compromise.

4th

1st

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Democrat agenda blocked in House; Republicans take

blame.

Democrats Stand Firm; Republicans Attack

This strategy combination results in serious economic consequences. Democrats will say Republicans crashed the economy because they couldn’t win at the ballot box.

This is the worst possible outcome for Republicans, as they will be blamed for causing a recession. It’s the second-worst outcome for Democrats because they control the White House and Senate.

It’s also the worst short-term outcome for the economy. It may be the best in the long run, though.

3rd

4th

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Republicans Would Be Smart To Move Last

If Democrats compromise, Republicans in the House would be best to stand their ground. The Republicans can claim victory, and Democrats would share in blame if the economy tanks.

Democrats would be smart to give Republicans an ultimatum. If Republicans take it, they will share in the economic consequences if things go bad but get no credit if things work out. Plus, the Republicans who vote for the compromise will face serious primary challengers in 2014.

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It’s Happened Before

This case study comes from the 1981 budget showdown between Ronald Reagan and Congressional Democrats.

In that case, Senate Democrats moved first, offering a compromise. That weakened the House Democrats’ position.

Republicans stood firm with Reagan in both Houses.

Democrats “out-Reaganed Reagan” by offering even larger tax cuts than the President requested.

By failing to apply game theory, the Democrats increased Reagan’s influence exponentially for the next six years.

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Credits

Much information for this case comes from a fabulous book

Thinking Strategically: Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life

Here’s the details:

Dixit, Avinash K.; Barry J. Nalebuff (1993-04-17). Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (Kindle Location 173). Norton. Kindle Edition.

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