The game theory behind ecosystems and economic systems.


An ecosystem can simply be viewed as a symbiotic interaction between living and non living entities which each take up a unique form in space and time. Each one of these forms has its own attributes, capabilities and restrictions that keeps it in tune with its natural surroundings.

The simplest of events that nature projects seem to hold us spellbound. A beautiful sunrise, the starry night sky, the enchantment of forests or the pure joy of seeing birds fly. Nature has never ceased to inspire the curiosity of men.

In fact nature has been at the centre of every significant innovative leap that mankind has taken in its journey to world domination. Man simply learnt to mimic natures tricks that could be adapted in a way in which it could be used to further improve the survival and convenience of human life. In a way man is at the top of the food-chain because we learnt to harness and store the energy produced by the elements that all beings are comprised of: Earth, Water, Fire, Air and Space.

We mimicked the way forests grew plants and trees in order to create more organised forms of plant life which we could then use to grow crops at a steady rate. This advent of agriculture allowed us to plan our survival needs in a more stable way than any species on the face of the earth. We carefully observed the way marine life operated to make advances in the way we as humans could travel through water without being destroyed by an element that covers close to 70% of the mass of the earth. We carefully studied the way friction works in nature to harness fire and we even took a page out of the skeletal mechanisms of birds to inspire the design of our earliest planes.

In a nutshell man and nature are as inseparable as the modern day man and technology.

But, hold on, what has all of this got to do with Game theory?

Game theory is a theoretical framework for conceiving social situations among competing players. In some respects, game theory is the science of strategy, or at least the optimal decision-making of independent and competing actors in a strategic setting.

As a student of economics, I decided to put my knowledge of Game theory to the test by applying it to the current negotiations taking place between countries and states in order to curb ecosystem exploitation.

In order to visualise these negotiations we will be simplifying a lot of these actions into approving and enacting a climate policy or deciding to continue business as usual. Here, in the context of the game, it makes sense to label the two strategies coordination and defection. The conjunction of each of these strategies with another actor’s corresponding strategy will produce an outcome for each actor.

In all scenarios, the five main considerations are the value of environmental resources, the future costs of climate change, the degree to which emissions policies can affect those future costs, how much those policies cost, and how much each actor can actually afford to spend or lose.

Figure 1: Climate change matrix in the beginning

The first figure shows what a short-term assessment of climate policy might look like if there was no real threat to the environment. Acting to protect the environment is costly and has a limited benefit that is far outweighed by the benefit of simply using the environmental resources at maximum efficiency.

So, for example: Let us imagine the two states in this case are Karnataka and Tamil Nadu, defection would mean both states opening up as many coal plants as possible to maximise energy output and profits. Neither state has an incentive to help protect the environment, especially in a market where the two neighbours compete against each other for jobs and productivity.

Figure 2: Climate change matrix at the point of ecosystem collapse

However, in this long term scenario, exploitation of a resource inevitably makes the resource scarcer. In this case, the resource is not land or coal, but the sum of the ecosystem itself, which degrades in time as it is exploited and polluted. The payoff of exploitation diminishes to zero and protection becomes increasingly attractive. So eventually there will be a point — near environmental collapse — where every actor will get it together and actually protect the environment. In game theory, this scenario where coordination is clearly dominant over defection is called a “stag hunt.” Only, in this absurd scenario, that point would come fairly close to when the environment was already gone.

This simplification misses out on some things, and ideally a game could collapse some of the benefits and drawbacks of the environment in the present and future into a single model, even though risks will still change as we get closer to the environmental cliff, a concept that will itself take much time to define if it even exists. Also, it appears that some damage to the climate and environment is likely inevitable, and policies are only working at this point to mitigate future global temperature rise or emissions. Additionally, emissions policies have real cost in terms of direct investments and productivity losses.

Given these considerations, we might be able to make some adjustments to an international matrix. Let’s say that right now, we estimate present and future costs of runaway climate change to be a ten on some arbitrary scale for each country. Using an example of India and China, let’s also assume that each country’s emissions policy can only mitigate the costs of climate change by three points that apply globally. So if India or China cuts emissions independently, the costs of climate change are reduced to seven. If both act, the costs are reduced to four. But emissions policies are also costly, and given the global nature of climate change, if one actor acts alone, generally the returns are diffuse compared to the costs. So let’s say the policy costs more than the benefit of one state’s contribution, or four points. The matrix now looks like this:

So the best option overall is for the two countries to work together. But the prospect of being faked out and the lure of gaining the benefits as a free rider with no investment (both the top right and the bottom left cells) mean that both sides will tend towards defecting, or continuing to exploit the environment at the rate they are currently going. This is the dominating strategy in a Prisoner’s Dilemma. This scenario might become a stag hunt as the costs of climate change become more immediate, clear, and relatively high and the benefits of even small amounts of mitigation gain a higher relative payoff.

The goal of years of diplomacy, green technology, and climate education is to turn the game into a stag hunt before the world gets too close to destruction. This involves increasing the payoff, reducing the cost of emission mitigation and increasing the understanding of climate change.

The ultimatum is, we clearly need to choose sides, we must either choose to support a future that is as green as our past or we must face the consequences of choosing a civilisation made up of dull grey technocrats who will stop at no limit to plunder the earth for resources in order to make a profit.

As for me, my side on this argument is as clear as daylight :

Show me one manmade creation as beautiful as this and I will change my mind.