The Cold War and Game Theory
The Cold War was a world strategy standoff based in the ideologies of Communism and Capitalism. This conflict began roughly at the end of the Second World War in 1947 and spanned until the fall of the Soviet Union in 1991. This conflict was deemed the “Cold” war because there was no direct military ground engagements between the two countries armed forces. Instead, it was a global chess match of proxy wars, espionage, and a race to escalate military technology as fast as possible.
Following the fall of the Nazi’s in Germany in 1945 Berlin was split down the middle with the West under United States control and the East under Russian control. This was the symbolic front of the Russian “Iron Curtain”, displaying the difference in everyday life of the citizens who were ruled under their respective ideologies.
The most prominently remembered aspect of the Cold War that comes to mind is the race to stockpile bigger and better nuclear weapons. This race eventually led to exactly where we find ourselves today in a global checkmate of Mutually Assured Destruction.
If we look at the Cold War through the lens of Game Theory we can see how some of the principles of economics were at work during this period of World history. To frame this situation, the United States and the Soviet Union were in a continuous arms race to see who could gain the upper hand. This lead to them constantly escalating the conflict by creating more weapons of mass destruction. However, who if anyone, benefitted from this continuous escalation?
Each world superpower has the choice to respectively escalate its production of weapons of mass destruction, or deescalate the production of such weapons. The payoffs are symbolized by the graph below.
To break down this graph we first have to understand what the numbers in the graph symbolize. A negative number represents a loss in perceived utility. Whereas a positive number represents a gain in perceived utility.
In the top left we see the perceived utility for both Superpowers if they were to both escalate their production of arms. With both numbers being negative both entities suffer a perceived loss. This shared loss in turn would hurt both powers over the long run of the conflict. Over the course of the 46 years of the cold war this strategy was the chosen course of action the majority of the time. This was until around 1975 with the Helenski Accords began to turn the tide with policy geared more towards de-escalation of the conflict.
In the top right/bottom left of the graph we see the perceived utility of if one superpower was to de-escalate and the other were to escalate and vice versa. With one number being a -10 and the other being 10, the superpower that de-escalates while the other escalates will experience a stark disadvantage. This was exactly the logic both superpowers adhered too during the Cold War. Neither wanted to give the opportunity to yield the upper hand to the other superpower for fear of losing the major advantage in the struggle at their own doing. This is exactly what didn’t happen during the early years of the Cold War leading up to the Helenski Accords.
What if there was a way that both superpowers could not lose out? A win win situation to say. This is the idea of the Nash Equilibrium. A Nash Equilibrium is defined as,
“Nash equilibrium, in game theory, an outcome in a noncooperative game for two or more players in which no player’s expected outcome can be improved by changing one’s own strategy.”(Britannica)
In other words, the Nash Equilibrium is reached when no entity can do better without unilaterally changing their strategy. Leading to an equal benefit for both groups.
In this particular example the bottom right represents the Nash Equilibrium in this situation. With both number being equal to each other at 0, it is the highest mutual benefit that can be drawn from the situation. In this case it is wise for both the superpowers, for their own gain to de-escalate. The perceived utility of both of this situation benefits both the United States and the Soviet Union in this case. This is the policy that was eventually adopted as the two superpowers agreed that it was in their and the world best interest if they set aside their differences and de-escalated the conflict.
This de-escalation reshaped the way the world looked as the Soviet Union dissolved into separate republics and states. This is a very interesting historical, real world example of how finding a Nash equilibrium can make the world we live in a better place for us to live.
Sources:
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