Queen’s Gambit, Indian Defense and South China Sea — Part 2

Google Earth image of South China Sea

Strategy develops through an interaction among multiple decision-makers, each of whom is vying for an optimal outcome in their favor.

This is the third trait of strategy, which we referred to in our previous discussion on the traits of strategy. Earlier, we discussed the first two traits, using moves in chess, namely the Queen’s Gambit and the Indian Defense to illustrate through examples that—

1. Strategy requires second-order thinking.
2. Strategy is about being dynamic in response to developing ground realities.

(You may please refer to “Queen’s Gambit, Indian Defense and South China Sea — Part 1” in case you haven’t already read it.)

We will now examine this third trait using game theory. Do you ask, “What is game theory?” Why, let’s get to it first.

The Prisoners’ Dilemma

The Prisoners’ Dilemma is one of the simplest examples of game theory. Imagine that there are two robbers, A and B, who committed an armed robbery together. The police have arrested two people whom they know have committed the robbery. However, they lack enough admissible evidence to get a conviction. They do have enough evidence to send each prisoner away for a year for theft of a car that they used during the robbery. They make the following offer to each prisoner:

1. If you confess to the robbery, implicating your partner, and he does not confess, then you will go free and he will get 5 years.
2. If you both confess, you will each get 3 years.
3. If neither of you confess, then you will each get 1 year for the car theft.

Payoff matrix for the prisoner’s dilemma

This is shown in the payoff matrix alongside. So, what do you think will both the prisoners do? We can see that the overall optimum outcome for both of them is shown in the green box, where both of them refuse and each gets a jail term of 1 year. However, since the two prisoners cannot speak with each other, they are most likely to arrive at a different outcome. Let’s try to understand Prisoner A’s strategy. Since both prisoners are in exactly the same condition, whatever we discuss from Prisoner A’s viewpoint will be exactly the same for Prisoner B. In game theory, this is referred to as a symmetric game.

Decision tree for Prisoner A

Imagine that Prisoner A draws a decision tree for himself. He can either confess or refuse resulting in two branches. Next, Prisoner B can either confess or refuse resulting in two branches each for the first two branches. Overall, there are four outcomes for A, just like we saw in the payoff matrix. However, now A can see clearly that irrespective of whether B confesses or refuses, A’s outcomes are optimized by A confessing. Please take a moment to review the decision tree to check this out. So A should confess. Like we noted earlier, B’s decision tree will be exactly similar and so he should also arrive at the same conclusion of confessing. So, both of them should end up with 3 years each in jail as shown in the blue box in the payoff matrix. This is the beauty of the game theory. Even in a fairly simple scenario, it helps us understand why the two prisoners, behaving rationally, but unable to communicate with each other, will end up with an inferior choice of 3 years each, instead of the overall optimal outcome of 1 year each.

So, now that we have grasped the basics of game theory, let’s turn our attention to how it applies to contesting claims in the South China Sea.

The Game of Chicken

The territorial disputes in the South China Sea are multiple. In simplified terms, it involves contesting claims between China and various countries in the region, including Brunei, Taiwan, Indonesia, Malaysia, the Philippines and Vietnam with respect to Spratly Islands, Paracel Islands (you can see both in the Google Earth image above), Scarborough Shoal, and various boundaries in the Gulf of Tonkin and other regions in or near the South China Sea.

Let’s examine the dispute between only two countries, namely China and Vietnam, with respect to only one territory, the Paracel islands to make it a simpler problem to analyse. I am not going to recount history to explain why is there a contesting claim or who seems to have a valid claim. That is a political, economic and military issue and you can read up on it through different sources. My sole aim is to explain an element of strategy using game theory for which I am simply using this as an example.

The game that the dispute between China and Vietnam resembles is the game of chicken. Actually, so does most of the other disputes in the South China Sea. In the game of chicken, two drivers A and B drive their cars towards each other at full speed from opposite directions on the same lane. The first to swerve yields the lane to the other, and is shamed by the other calling him a “chicken”. Hence the name “game of chicken.” If neither player swerves, the result is a potentially fatal head-on collision.

Payoff matrix for the game of chicken

We can draw a numerical payoff matrix by assuming the following numbers —

1. If one driver (say A) stays and the other (say B) swerves, it is a win of +1 for the driver who stays and a loss of -1 for the one who swerves
2. If both of them A and B swerve, it is a tie with a payoff of 0 for each
3. If both of them A and B stay the course, it is the worst outcome resulting in a crash, resulting in a payoff of -100 for each.

Replace driver A with China, driver B with Vietnam and the single lane with the Paracel islands, and you have a game theory model of the dispute. One would assume or at least hope that since a crash (or a war) results in the worst outcome of all, both A and B will do their best to avoid it. However, one of the players can use bullying and brinkmanship as a tactic in their strategy arsenal to try to win at any cost.

Bullying and brinkmanship

One party, which is hellbent on somehow winning can do some things to change the even playing field. For example, they could signal their intentions convincingly before the game begins by disabling their steering wheel just before the game. Then the other party has little choice but to swerve. See the payoff matrix again. If driver A is the one which employs this tactic, driver B now has only two choices —

1. Stay the course that results in a crash with payoff of -100 for each
2. Swerve and accept a much smaller loss of -1 for themselves, allowing the other side a win of +1

The rational course in this scenario is to make the second choice. Similarly, in the case of territorial disputes, if one country makes preemptive moves such as taking control of features and building structures on a disputed island, the other country is often forced into the choice of accepting it, even if it does not seem fair.

Of course, what I have stated as an example must only be treated so to understand the role of game theory in strategy. In the real world, the two countries are rarely equal in power, there are many other factors and many other players to account for including a block of nations such as ASEAN, another powerful country such as Japan and unarguably still the most powerful nation on earth, USA to account for while planning your moves. The principles still apply in these more complex, real-world scenarios. I hope that you found the illustrative examples helpful.