GLOBAL WARMING AND GAME THEORY

Global Warming and Game Theory

Global Warming and Game Theory

Introduction

Grazing land for sheep or reindeer, fishing banks and the atmosphere are examples of resources with limited capacity that are used by numerous individuals or groups that we refer to as actors or players. If there is open access, everybody is tempted to exploit the resource to serve their own ends; and if all do so, it will eventually lead to depletion. To avoid that, players sometimes negotiate an agreement to share the resource in a sustainable manner. The problem, however, is that it is tempting to cheat; so the result may still be overuse and subsequent depletion, or what is known as the tragedy of the commons.

Game theory is a tool that is useful for studying such phenomena. One of game theory's many achievements in environmental studies is to explain why many biological resources are overused to depletion like anchovy off the Peru coast, or threatened by extinction like cod in the North Atlantic. Game theory has been used to determine the distribution of quotas among bluefin tuna fishermen in Australia.1 It has also been applied to the gas trade and to the study of international pollution abatement.

Game theory makes a basic assumption that self-interested actors will try to maximize their own gain, and this assumption is often able to explain actual behavior well. But it often happens that predicted behavior contrasts with what we see in real life, demonstrating that the assumption of narrowminded “rationality” is not always correct.2 Game theory allows for simultaneous decisions by several decision makers, where the outcome for each depends on the decisions of all. A decision maker therefore has to consider what competitors will do, before making up her own mind. However, that depends on what she thinks they think she will do, etc. This can go on ad infinitum, although in reality we have found that most people think only two steps forward in a decision process.

Game theory can be used to:

Give advice in decision situations.

Illustrate ethical dilemmas when two or more actors make decisions affecting everybody.

Find optimum social solutions to complex decision dilemmas, such as how to control pollution by issuing pollution permits.

Predict how people will react in a decision situation.

Find sustainable solutions to repeated games.

Basic Concepts in Game Theory

The study-objects of game theory are strategies available to individual decision makers, and the resulting outcomes when all actors have made their decisions. The simplest kind of game has only two players, each one having the choice of one out of two strategies, and the choice is made only once.

Conventions

For convenience, we shall call the players Row and Column; Row has the choice between rows and Column the choice between columns. The standard assumption is that they have to choose independently and simultaneously, but sometimes we shall allow for communication between them. Both players know the payoffs, which are shown in the game matrix as two numbers, the first is Row's payoff and the second Column's ...