Tuesday, September 30, 2008

start bailing

Suppose you and a recent acquaintance rob a bank together. The cops now have you both in separate interrogation rooms. You’ve figured out that they don’t have enough evidence to get you on the robbery charge, but can probably put you away for a couple years on some minor count. The swarthy interrogator waddles into the room and glares at you. “Look,” he says, “we know you two did it. But if you agree to testify that your accomplice was the real perpetrator, we’ll let you go free.”

At first you hesitate, unsure if you should take the deal and condemn your accomplice to a much longer term than would be assigned if you stay quiet. But then you realize that they’re probably right now offering the exact same deal to your accomplice – and if your accomplice takes the deal and you don’t, then you will be the one going away for many years. But, oh yeah, if you both rat each other out, then that will give the cops enough evidence to put you both away for at least a few years.

As many readers know, what I’ve just described is the quintessential prisoner’s dilemma. This structure is common to many social problems. The basic idea is that if all members of a group cooperate, they will achieve some mutually beneficial end. However, a member who defects from the group can expect to achieve a much greater personal benefit, at the expense of the group as a whole. There is then a very strong incentive to not be the sucker who gets left holding the bag when a defector ruins the cooperative project. But if everyone defects, then things turn out pretty badly for everyone. Still, given the expected payoffs, it is usually rational for any individual member to defect.

Today’s failure of the economic bailout bill was a result of prisoner’s dilemma psychology. This prison has 435 inmates, each of whom will face her or his constituents in a few short weeks. Here’s what happened. The bailout bill is extremely unpopular; apparently constituent calls to congressional offices have run 100-to-1 against it. If you’re an incumbent congresscritter facing a tough reelection bid, you really don’t want to be caught voting for this bill. You can just imagine your opponent’s TV ads already: “The incumbent voted to give $700 billion of your money to greedy Wall Street pigs who have already spent it on hookers and blow. Think of how many celebrity magazines you could have bought with that $700 billion! Vote Opponent!” This would be a disaster.

On the other hand, if everyone in Congress votes against the bill and it fails, then the economy will collapse – which is also not a great thing to have on your record while running for reelection. Even if you do win, your congressional pension will be of limited use in our Mad Max future, with its barter economy and roving bands of glassy-eyed marauders.

Of course, what you really want is to be a lone defector, or at least among a small group of defectors. See, you want the bill to pass, so that there is still an economy next week. But you also want to vote against the bill, so that you can tell your constituents you hate rich people as much as they do. An ideal solution is that enough of your idiot colleagues vote for the bill to ensure its passage, while you run against it in your home district. And above all, you don’t want to be the stupid sap who votes for the bill when you could have gotten away with opposing it! What are you, a moron?

Hence the bill’s failure today: too many defectors, not enough cooperators. Want some empirical confirmation of the prisoner’s dilemma explanation? Of the 15 incumbent House members on the Washington Post’s ‘most threatened seats’ list, two-thirds voted against the bill. And among the 27 House members who are running unopposed this year? The exact opposite: two-thirds voted for the bailout. (Among unchallenged incumbent Republicans, Ron Paul is here the sole grumpy exception that proves the rule.)

But all is not lost. There will be another vote later this week, in which we will see the power of the iterated prisoner’s dilemma. This is a variant in which the dilemma is repeated – but only after the cooperators have some chance to punish those who defected the first time round. Expect to see Nancy Pelosi taking away lucrative committee seats from uncooperative Democrats. Who knows what horrors John Boehner may have in store for his recalcitrant partisans. The bill will pass. This economy is too big to fail!

No comments:

Post a Comment