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Game Theory in Nuclear War Strategy

When discussing game theory, it’s easy to forget its applications beyond just games, as the name would deceptively suggest. The mathematical field of game theory can provide elegant ways to strategize very real and difficult problems. When I was reading the blog post titled ‘Coordination Failure’ by Linda, I found the mention of the nuclear arms race most fascinating. This was also briefly brought up in the blog post titled ‘Balance of Top Countries, A View of Their Relationship Network’ by Jiale. This prompted me to do more research and further uncover how game theory can be applied to arguably one of the most serious and/or dangerous situations we face as a society.

I came across an analytical article from The Washington Post called ‘What game theory tells us about nuclear war with North Korea’ by Elizabeth Winkler. This article was written in August of 2017, when tensions between the United States and North Korea were seemingly at all time highs, with a looming threat of nuclear war. Something interesting that was pointed out in the article is that the use of game theory for military strategizing is not a new concept. In fact, it seems like we’ve done it ever since the theory itself was formalized! We’ve seen in class that what may be independently best for the players, which is what game theory aims to model, may not always be the best choice overall, which is personally a little scary considering that’s the difference between nuclear fallout and not in this case.

The article, which is actually framed as an interview between Winkler and Stanford professor Tim Roughgarden, draws parallels between nuclear strategy and the Prisoner’s Dilemma that we’ve also seen in class.

Prisoner’s Dilemma payoff matrix (Anderson, 2020)

In the Prisoner’s dilemma, the two “players” are suspects in custody who either have the option of confessing to a crime or not. Their payoff (or punishment rather) is not only dependent on what they choose to do, but also what the other suspect chooses to do. Roughgarden claims this is analogous to the United States and the Soviet Union during the Cold War. In that scenario, the (simplified) options were to either attack with nuclear weapons or not for both countries. A similar payoff matrix could be determined for the Cold War using arbitrary payoff for winning or losing:

Cold War payoff matrix using arbitrary payoff of 100/-100

There are a few differences between the Cold War era and the North Korean era. First of all, during the Cold War era, both the US and Soviet Union were neck-and-neck in terms of their capabilities to wage war. This meant that the “game” was balanced in which both players had roughly equal actions. From a game theory standpoint, this is ideal. However, naïve analyses like this are flawed in that they don’t take into account repeated games. For example, it’s likely in a country’s best interest to attack, but this can cause other parties to behave differently in the future. The article mentions that the conflict between US and North Korea is almost a second round or repeated “game” of the US and Soviet Union one.

When asked what action the US should take, Roughgarden refers to an example that we’ve seen in class where two people would prefer to go to dinner together, but have different food preferences. This idea of multiple Nash equilibria where there are multiple best options isn’t clear from the payoff matrix above, but that’s because of another flaw of applying game theory to analyze war strategy. Roughgarden says that it’s simply not clear what the other side will do or how rational they may behave. We know from class that the models we have learned require the assumption of equally rational parties. But people are people and it’s never as simple as that. Personally, this gets me more excited than ever to learn about how more advanced game theories account for unbalanced players with better accuracy.

References

Winkler, Elizabeth. “Analysis | What Game Theory Tells Us about Nuclear War with North Korea.” The Washington Post, WP Company, 29 Apr. 2019, www.washingtonpost.com/news/wonk/wp/2017/08/16/what-game-theory-tells-us-about-nuclear-war-with-north-korea/.

Linda. “Coordination Failure.” CSCC46 2020 Course Blog, 13 Nov. 2020, cmsweb.utsc.utoronto.ca/c46blog-f20/2020/11/13/coordination-failure/.

Yang, Jiale. “Balance of Top Countries, A View of Their Relationship Network.” CSCC46 2020 Course Blog, 23 Oct. 2020, cmsweb.utsc.utoronto.ca/c46blog-f20/2020/10/23/balance-of-top-countries-a-view-of-their-relationship-network/.

Anderson, Ashton. “Lecture 8.” Social and Information Networks. www.cs.toronto.edu/~ashton/cscc46/lectures/lecture8-2020.pdf.

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Small-World Networks of Venture Capitalism

I’ve lately become quite fascinated by the financial world. This is generally a broad topic and includes subtopics such as equity markets, supply and demand curves, business acquisitions, etc.

What I have been observing recently is that a lot of mainstream financial analysis revolves around stock markets, mainly due to the rise in retail investing. In fact some great blog posts from this very class in past years do a great job of applying network analysis to equity markets. 

However, I’ve personally seen a lack of blog posts and publications about a more socioeconomic and encompassing topic: venture capitalism. In a nutshell, venture capitalism is the concept of funding start-ups and early stage companies by individuals or firms with investment capital. I find this topic incredibly interesting because it involves substantial sums of money (often millions or even billions of dollars) transacted by a relatively small number of individuals or firms. During my exploration, I came across what I found to be an extremely relevant paper by researchers in the Department of Sociology at Tsinghua University in Beijing.

This paper explores how a small-world network can be formed to accurately model the relationships between Chinese venture capitalist (VC) firms. As we know from class, small-world models aim to maintain high clustering with short paths at the same time. This helps model real social networks more accurately. While the paper is quite expansive, I’d like to focus on how the model was developed, its key properties, and how it was validated.

The researchers first observed existing firms in the Chinese VC industry via the SiMuTon Database to establish properties that must be reflected in the model. For example, they observed that there are few major firms (referred to as ‘elites’) that lead smaller groups. These smaller groups are connected by these elites, and therefore the edges between elites are actually bridges (as discussed in lecture) because removing them would break up the VC network. Furthermore, because of government intervention in China, there is a lot of uncertainty in the VC industry. Therefore, there is evidence of many alliances between VC firms to form higher trust and stability. These ideas were combined to form a small-world model representing the Chinese VC industry, which can be illustrated by the following example:

The ties between firms were determined by two factors. Firstly, the probability of an edge increased when two firms were mutually invested in some other. This uses the concept of relational embeddedness. The other factor uses structural embeddedness theory which says the probability of an edge increases proportionally to the number of common neighbours.

I find it very interesting that this development process followed the examples of small-world models we’ve seen in class. In particular, models such as Watts & Strogatz or Kleinberg’s use observations from experiments such as Milgram’s small-world experiment or the Columbia small-world study to help advance the accuracies of said models. Kleinberg’s model used the observed fact from Milgram’s experiment that as people sent their letter forward, the distance between the source and target typically halved.

Finally, the model they developed was tested against a random model to determine if any features are noteworthy or not. This is similar to using Gnp as we have in class. It was also tested against the real data which showed that accounting for embeddedness helped significantly boost the accuracy of the overall model compared to the random model.

References

Gu, W., Luo, J., & Liu, J. (2019). Exploring Small-World Network with an Elite-Clique: Bringing Embeddedness Theory into the Dynamic Evolution of a Venture Capital Network. ArXiv, abs/1811.07471. https://arxiv.org/ftp/arxiv/papers/1811/1811.07471.pdf