Friday, December 15, 2017
Game Reality in Catalonia
A long time ago, the first teacher that tried to teach me Game Theory was Clara Ponsatí. In those years and at least in that particular class, she was not a very good teacher and I was not a very good student. I had to wait for some years to know the basics of Game Theory when I had more time to be a good student and I had a better instructor in James Dow at the European University Institute (Dow had met Ponsatí in the USA in their formative years). She is now fugitive from Spanish justice in Brussels (she says she is "in exile"), because she was part of the Catalan government that tried to violate the rule of law in October. She had been appointed as Regional Education Minister just months before the failed declaration of independence because she was believed to be a Taliban of Independence, according to media commentators. She published a short article in 2012 (I can only find a version in Spanish here), entitled "Benefits, Costs and Game Theory" where she argued that the only reasonable equilibrium in a game between the Spanish median voter and the Catalan median voter was for the Catalan median voter to declare independence and for the Spanish median voter to accept it, "because the costs of conflict for Spain were not affordable." It is basically the same argument of those in favor of Brexit in the UK: the EU negotiators will have to accept the conditions of the UK negotiators because the costs of a hard Brexit or of no agreement would not be affordable for the European Union. Both in the case of Europe and in the case of Spain, we have seen that the predictions of the nationalists (even the best educated of them) could not be farther away from reality. What was wrong in their analysis? First, probably that decision makers in Spain and Europe do not take only into account the economic costs in the two by two game, but also the overall politico-economic costs of disincentivizing any other separation attempt. Second, the relevant players were not only the representative voters in Spain and Catalonia, but the diverse voters holding different positions in both societies. Finally, Ponsatí assumed that absent the "irrational" opposition of Spain and any veto of the European Union (that would fall under the acceptance of an abiding Spain), the economic benefits of independence were overwhelming. Today, more than 3000 firms (see this article in The Economist) have moved their headquarters out of Catalonia, and hundreds of thousands of small investors moved their savings to other regions, only after the threat of independence. I still believe, after what I learned from James Dow, that Game Theory can be very useful to understand politics and economics (and beyond), and I enjoy teaching it at a basic level in my courses on Microeconomics, Public Economics and Sport Economics. In some rare cases, 2x2 games are not rejected by real data from real interactions (like in soccer's penalty kicks). Most of the times, though, real world games are much more complex than simple blackboard (or power point) 2x2 interactions.