The Predictioneer’s Game: Using the Logic of Brazen Self-Interest to See and Shape the Future

by Bruce Bueno De Mesquita

  Some may find this materialistic explanation of personal sacrifice offensive. The trouble is, it’s a lot costlier to believe mistakenly in other people’s goodwill than it is to be a cynic and assume they’re looking out for themselves (until and unless their actions say otherwise). It is hard to get burned in personal dealings if you remember Ronald Reagan’s dictum: Trust but verify. For those who are offended by this tough view of human nature, I urge you to consider some facts.

  The United States operates the Concerned Local Citizens program in Iraq. Following the alphabet-soup tradition so beloved by the Pentagon, the Iraqis participating in this program are known as CLCs. CLCs help guard neighborhoods against insurgents. They are paid ten dollars a day for their service. It doesn’t seem as if there is anything crass or overly materialistic about that. But then we should pause to ask, who are these CLCs and what, exactly, are we buying for ten dollars a day?

  These concerned Iraqis are not your ordinary neighborhood watch group. They are not the folks next door who give school kids a safe place to go when their parents are at work. They are not the friends who have your house key, water your plants, take in your mail, and feed your cat while you’re on vacation. No, they’re former anti-American insurgents, tens of thousands of them. Some of them, in fact, used to belong to al-Qaeda. It would seem that they were among the most fanatic of fanatics, the worst of the worst. And yet for a measly ten bucks a day these supposedly unshakable al-Qaeda terrorists now act like allies of the United States, serving as our very own paramilitaries, helping to keep violence down in mostly Sunni neighborhoods, defending the peace that they used to shatter for a living. How can this be? How can terrorists be so easily converted into our friends and protectors?

  As it happens, being an ex-insurgent employed as a CLC is a very good job by Iraqi standards. At ten dollars a day, CLCs can earn a few thousand dollars a year from the United States, plus, of course, whatever extra they make on the side. The average Iraqi, despite that country’s huge oil wealth, earns only about six dollars a day, almost half what a CLC gets!3 Those who think that terrorists are irrational religious zealots who do not respond to monetary and personal incentives should remember that a daily dose of just ten dollars is enough to get such folks to become quasi-friends of the United States of America.

  Of course, there is as much room for saints as for sinners in game theory. There’s no problem accommodating the (few) Mother Teresas of our world. Since game theory is about choosing actions given expected costs and benefits, it does encourage us to ask, perhaps obnoxiously, what benefits Mother Teresa might have expected in return for her life of sacrifice and good works. We cannot help but notice that she did not serve the poor as quietly as most nuns do, living out their lives in anonymous obscurity. The very publicness of Mother Teresa’s deeds reassures us of her rationality and her potential to help poor people on a large scale.

  Whether we call on the Catholic understanding of a saintly life or the Talmudic view of a charitable life, we encounter a problem on Mother Teresa’s behalf. In doing her good works, she might have had to worry, as (Saint) Bernard of Clairveaux (1090-1153) did, that in obeying God’s commandments as faithfully as possible she could be committing the deadly sin of pride. Maybe she thought herself better than others, more deserving of heaven, even worthy of sainthood, exactly because of her personal sacrifice and good works. That, as we will see, does not seem to have been a major source of worry for her.

  From the Talmudic perspective as expressed by Moses Maimonides (1135-1204), she would have had at least as big a problem. Maimonides, or Rambam as he was known in his day, concluded that charity given anonymously to anonymous recipients in order to help them become self-sufficient is the best kind. Mother Teresa’s giving did not rise to this standard, and she made sure it didn’t. She did not give anonymously; she knew to whom she was giving; and she did not strive particularly to make the beneficiaries of her kindness self-sufficient. In fact, she went out of her way to make herself and her acts recognizable. For instance, Mother Teresa carefully promoted herself, creating brand-name recognition—just like Cheerios, Coke, Xerox, or Vaseline—by always wearing the special habit of the order she founded (a white sari with blue trim and sandals) so that she could not be easily confused with just any nice old lady. Of course, anonymous giving could still be prideful, but for sure it could not lead to a Nobel Peace Prize in this world or to beatification and canonization in the next.

  Could it be that Mother Teresa’s ambition for herself was tied to her faith in an eternal reward? It makes sense to pay the price of sacrifice for the short, finite time of a life span if the consequence is a reward that goes on for infinity in heaven. In fact, isn’t that exactly the explanation many of us give for the actions of suicide bombers, dying in their own prideful eyes as martyrs who will be rewarded for all eternity in heaven?

  Or maybe, in Mother Teresa’s case, the rational, calculating motivation behind her deeds was more complex. We know now that she questioned her religious faith and the existence of God.4 Her doubts apparently began shortly after she started to minister to the poor and sick in Calcutta. By then maybe she felt locked into the religious life she chose for herself. Doubting God and ill-prepared for a life outside the Church, perhaps she found a perfect strategy for gaining the acclaim in life that she feared might not exist after death. Was she looking for an eternal reward, or for reward in the here and now? Only she could really know. We applied game theorists are content to observe that she acted as if being rewarded was her motivation. That is, she was not cold and materialistic; she was warm and materialistic. That is enough to make her a fine subject for analysis as a rational, strategic player in the game of life—and maybe enough to earn her sainthood as well.

  Game theory draws our attention to important principles that shape what people say and do. First of all, just like Mother Teresa or a suicide bomber, all people are taken to be rational. That just means we assume they do what they believe is in their own best interest, whether that’s making as much money as they can or gaining entry to heaven or anything else. They may find out later that they made a poor choice, but in game-theory thinking we worry about what people know, believe, and value at the time they choose their actions, not what they find out later when it’s too late to do something else. Game theory has no place for Monday-morning quarterbacks. It’s all about what to do when decisions must be made, even if we cannot know for sure what the consequences of our actions will be.

  This notion of rational action seems to trouble some people. Usually that’s because they mean something different from what an economist or political scientist means when talking about rationality. Words can have many meanings, so we must be careful to define ideas carefully. As it happens, game theorists insist on a particular use of the word “rational.”

  Some folks seem to think that rational people must be super smart, never making a mistake, looking over each and every possible thing that could happen to them, working out the exact costs and benefits of every conceivable course of action. That is nonsense. Nobody is that smart or diligent, nor should they be. Actually, checking out every possible course of action, working out everything that possibly could arise, is almost never rational, at least not as the term is used in my world. It is never rational to continue searching for more information, for example, when the cost of finding out more is greater than the expected benefits of knowing more. Rational people know when to stop searching—when enough is enough. (I try to impart this message to my students. When they tell me they want to make their term papers as good as possible, I plead with them not to. A paper that is worked on until it is as good as possible will never be finished.)

  Another way that people talk about rationality that has nothing to do with what “rational choice theorists” have in mind is to discuss whether what someone wants is rational or not. Distasteful as the fact may be, people with crazy ideas can be perfectly rational. Rationality is about choosing actions that are consistent
with advancing personal interests, whatever those interests may be. It has nothing to do with whether you or I think what someone wants is a good idea, shows good taste or judgment, or even makes sense to want.

  I certainly think what Adolf Hitler said he wanted and what he did to advance his heinous goals were evil, but I am reluctant to let him off the hook with an insanity plea by saying he was not rational. His actions were rational given his evil aims, and therefore it was perfectly right and proper to hold him and his henchmen accountable.

  The same holds for modern-day terrorists. They’re not nuts. They are desperate, calculating, disgruntled people who are looking for ways to force others to pay attention to their real or perceived woes. Dismissing them as irrational misses the point and leads us to make wrongheaded choices about how to handle their threat. We do ourselves no service by labeling people as insane or irrational simply because we can’t understand their goals. Our attention is better fixed on what they do, since we probably can change or impede their actions even when we can’t alter what they want.

  What exactly does rationality require? Actually it’s a simple idea. To be rational, a person must be able to state a preference among choices, including having no preference at all (that is, being truly indifferent). Also, their preferences must not go in circles. For instance, if I like chocolate ice cream better than vanilla—who doesn’t?—and vanilla better than strawberry, then I also presumably like chocolate ice cream better than strawberry. Finally, rational people act in accordance with their preferences, taking into account the impediments to doing so. For instance, one ice cream parlor might be sold out of chocolate more often than another. I might be willing to risk having to settle for vanilla if the place that runs out also has much better tasting chocolate. Taking calculated risks is part of being rational. I just need to think about the size of the risk, the value of the reward that comes with success, and the cost that comes with failure, and compare those to the risks, costs, and benefits of doing things differently.

  Since rational people take calculated risks, sometimes things turn out badly for them. Nobody gets everything they want. I sometimes end up drinking soda I don’t like or eating vanilla or strawberry ice cream despite my best efforts to obtain what I prefer. That’s what it means to take risks. We absolutely cannot conclude that someone was irrational or acted irrationally just because at the end of the day they got a rotten outcome, whether that means being stuck with strawberry ice cream, losing a war, or even worse.

  Rational choices reflect not only thinking through risks but also trying to sort out costs and benefits. Costs and benefits can be tricky to work out. I could be unsure of what those costs or benefits are likely to be. That too can be an important impediment or constraint on my rational decisions. Sometimes we have to make decisions even though we are in the dark about the consequences. Fortunately, that doesn’t happen much with buying ice cream or soda, but it sure happens a lot when negotiating a big business deal or forging a new foreign policy. In those cases, we had better be careful to weigh the sources of our uncertainty carefully, and not plunge headlong into some dangerous endeavor with no more than rose-colored glasses to guide our way. We may not get the consequence we want, but we can be careful to manage the range of consequences that are likely to arise. (Just imagine how different the debacle in Iraq might have been, for example, had American leaders not thought that the Iraqi people would be dancing in the streets, kissing American soldiers after Saddam was overthrown the way Parisians did when Americans marched into Paris behind Charles de Gaulle on August 26, 1944.)

  The question remains, however, as to when someone is actually irrational. In everyday usage, lots of behavior looks irrational even though on closer inspection it turns out not to be. Sometimes critics point to behavior like leaving tips in restaurants, giving gifts to friends, or—sorry, I don’t mean to be gross—flushing the toilet in public places like airports or museums as irrational acts. They argue that all of the benefit goes to someone else, not to the tipper, gift giver, or flusher. I say, not true.

  Many rational acts impose short-term costs on the doer with the expectation of longer-term gains. That’s true of tipping, gift giving, flushing public toilets, not littering, and lots more. Sure, you might leave a tip even though you don’t expect to be in the particular restaurant again. Tipping, however, like gift giving, is a social norm that has arisen and taken hold because we have learned that its effects on the expectations of others (waiters, dinner party hosts) are important to making our own lives a little happier and easier. If waiters thought they weren’t going to get a tip and yet continued to be paid poorly, then it’s a good bet that service would be much worse in every restaurant. Studies show, for instance, that customer satisfaction with service does not help predict the restaurants people choose in southern China.5 Tipping is illegal in China (which is not to say that it never happens, but it isn’t expected). It is good to keep in mind that people act on expectations. It seems that the quality of service doesn’t vary much between restaurants in southern China, because the service ethic just isn’t guided by anticipated rewards for good service. Take away the expectation of tips, and the waitstaff is motivated by something other than the customers’ interests and the waiters’ rewards for satisfying those interests.

  Tipping, gift giving, and, yes, flushing the toilet create good expectations that make each of us better off most of the time even if they cost a little at the moment. Sure, we could free-ride on the good acts of others, save a little money or the little bit of effort it takes to flush a toilet or throw litter in the garbage can instead of on the street, but most of us would feel bad about ourselves if we did that. The urge to feel good about ourselves—not to take the risk of offending others and not to bear the cost of their reaction—is sufficient to induce us to behave in a socially appropriate way. For the few misanthropes who prefer to save the money that a tip or a gift costs or the effort that flushing a toilet costs, well, they are behaving rationally too. They aren’t concerned about feeling like lowlifes. They value the savings from their poor behavior more than goodwill or long-term good results. That’s why there really is no accounting for taste. Rationality is, as I said, about doing what you believe is in your own interest; it doesn’t impose interests on us.

  So what does constitute irrationality in an applied game theorist’s world? A person is irrational if, returning to the example of ice cream flavors, all of the following are true: she likes strawberry ice cream better than chocolate; strawberry ice cream costs no more than chocolate ice cream; strawberry ice cream is readily available for purchase; and still she goes and buys chocolate ice cream for herself. In such a case, I might wonder whether she had eaten so much strawberry ice cream recently that she wanted a change (a preference for variety over constancy, adding another dimension to the things preferred that was not included on my list) or something like that, but if those sorts of considerations are absent, then a strawberry lover is expected to eat strawberry ice cream when everything else is equal.

  All of this is to say that, really, the only people who are ruled out by assuming rationality are very little children and perhaps schizophrenics. Little children—most especially two-year-olds—and schizophrenics sometimes act as if their preferences change every few seconds. One minute they want strawberry and the next it’s the worst thing in the world. That sort of flip-flopping in individual preferences is hazardous for those who want to predict or engineer people’s choices. Reasoning with people who flip-flop all the time is all but impossible. They’re not committed to being logically consistent in what they say, want, or do.

  Nature may not abhor a vacuum, but game theory definitely abhors logical inconsistency. If you allow the possibility that what an individual really wants changes all the time, moment to moment, then you can claim that anything they do and anything they get fits in with (or contradicts) their interests. That certainly won’t lead to good predictions or good engineering, and besides, it just isn’t any f
un. It takes all of the challenge out of working out what people are likely to do.

  WHAT IS THE OTHER GUY’S LOGIC

  (NOT HIS LANGUAGE)?

  On account of the above, it may have become readily apparent to you that game theory alerts us to be careful in how we express and understand our interests and those of others. It’s easy to make logical mistakes, and they can be hard to spot, which can often disguise or obscure the meaning of the thinking and actions of individuals. That is why game theorists use mathematics to work out what people are likely to do.

  Ordinary everyday language can be awfully vague and ambiguous. A friend of mine is a linguist. One of his favorite sentences goes like this: “I saw the man with a telescope.” Now that is one vague sentence. Did I look through a telescope and spot a man, or did I look over at a man who was carrying a telescope, or does the sentence mean something entirely different? You can see why linguists like this sentence. It gives them an interesting problem to work out. I don’t like sentences like that. I like sentences written with mathematics (and so do many linguists). They don’t produce poetic beauty or double entendres, which makes them boring, but it also gives them a great virtue. In English, saying things are equal often means “more or less;” in math, “equal” means just that, equal, not almost equal or usually equal, but plain simple equal.

  We humans have devised all sorts of clever ways to cover up sloppy or slippery arguments. As I am fond of telling my students, my suspicions are aroused by sentences beginning with clauses like “It stands to reason that” or “It is a fact that. …” Usually, what follows the statement “It stands to reason that” does not. The clause is being asked to substitute for the hard work of showing that a conclusion follows logically from the assumptions. Likewise, “It is a fact that” generally precedes an expression of opinion rather than a fact. Watch out for these. This sort of rhetoric can easily take a person down a wrong line of thinking by accepting as true something that might be true and then again might not be.