The Predictioneer – Part II

A few weeks ago, I wrote about the book by one Dr Bruce Bueno De Mesquita entitiled, the Predictioneer. The book is about correctly predicting the future using game theory. The author claimed that it is possible to predict and engineer possible future events using current information and data using game theory model based on computer simulation. With the number crunching done by computer, it is possible to see pathways to be taken to solve current issues and engineer possible future directions. Dr.De Mesquita claimed that his model has been successfully used in numerous occasions to predict future and past events. From predicting  events during time of Sparta to Columbus’ discovery of America, India and Pakistan’s leadership issues as well as prediction of World War 1, the theory seems to fit in quite well. He even used the model to help a company select its CEO and predict future green environmental issues. The basic premise of game theory is that man will make decision that will protect and improve his/her interest. With various data from the main players involved in the issues plus proper weightage on stakeholder, price, salience, and influence being fed into the computer, various possible paths can be generated and examined to solve a problem or predict an outcome.

I managed to complete the book, amid the kek lapis, lemang, rendang, traffic jams, family visits, office crises and  airport delays over the hectic last couple of weeks.

One particular topic that I found intriguing is how Dr. De Mesquita predicted that the peace deal in the Middle East will never work under the current framework. He said the land for peace or peace for land deal will invariably failed due to what the game theorist called time inconsistency problems. What that means is, when two opposite  parties agree to solve a problem based on concessions. One party would give concession to another party today with the hope that the other party would in good faith reciprocate the benefit tomorrow. More often than not, the benefit receiver would reneged as he already had had what he actually demanded and the threat of failing is already removed. That will encourage him to demand more concessions from the benefit giver before acceding to the concession, thus infuriating the benefit giver who most certainly would retaliate and the whole thing soon would balloon to another full blown crisis. This was what happened in the peace deal between Israel and Palestine. Giving up land in the promise of getting peace eventually leads to more demands for more land before peace is granted. Conversely if the peace giver (Palestine) lays down arm to show good faith, the land giver (Israel) is free to renege, feeling no compulsion to give up the land as the Palestine had no more arms to threaten them! And this would certainly make the Palestinians felt betrayed and started taking arms and launched violent attacks again.  I think this time inconsistency problem can also be seen in the battle of Jamal between Saidina Ali and Umayyah where Saidina Ali’s negotiating team was ‘tricked’ into pledging for peace.

For lasting peace in the Middle East, Dr De Mesquita is suggesting what he called a “self enforcing” strategy where neither party has an incentive to deviate from the agreement. It is an agreement that require little mutual cooperation or trusts between opposing parties. The idea is to find a strategy that will provide incentive to both parties that will promote peace on both sides without having to depend on either sides cooperation. He was suggesting that America negotiate with both parties to contribute a portion of their revenue from tourism (only from tourism) to each other. The distribution is based on the current population of each party. Why tourism? Tourism dollar is highly sensitive to violence. Both parties would be compelled to control violence so that their tax from tourism would increase. The incentives is the compulsion on both sides to keep peace so as both parties would get more money as more tourists would come if there is peace. If either party could not control their people tendencies to violence or actions that will generate violence, both parties would get less money as violence translated to less tourists. Less tourists means less tourism dollar to both parties. The argument theoretically is logical enough. But will it work in real life?

Could shared tourism dollar keep the peace?

Another interesting bit from the book is on how to look out for a possible future problems in the seemingly flawless company performance report. One simple clue is to look for incentives to directors versus performance. If payments to directors were reduced while the company financial performance  were up, something must be wrong somewhere! Being human, the directors would not have made decisions averse to their benefits while the company is apparently doing well. They must be hiding something! The actual performance may not be as good as it was reported. And the company maybe facing problems in the future.

This little book (only 248 pages) is quite fascinating, if only the author could cut down self ego inflating journey, it would be more interesting.

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