Tuesday, April 14, 2009

Game Theory and Piracy

. Tuesday, April 14, 2009

From Zero Intelligence Agents comes this really interesting piece on the use of Game Theory to analyze the strategic interactions between states and pirates (my apologies for becoming so pirate obsessed lately!):

There has been mounting consternation regarding the recent threats of violent escalation by Somali pirates in response to the successful—yet deadly—rescue operation undertaken by the U.S Navy. As the AP reports:

"From now on, if we capture foreign ships and their respective countries try to attack us, we will kill them (the hostages)," Jamac Habeb, a 30-year-old pirate, told The Associated Press from one of Somalia's piracy hubs, Eyl. "(U.S. forces have) become our No. 1 enemy."
While this rhetoric serves pirates' purposes, in conveying a menacing facade, if we view the history of events leading up to these statements through the prism of rational choice we can easily identify them as simple cheap-talk.

Consider each pirate incident as a sub-game in a indefinitely repeated game between a pirate group and a state entity. The pirate group can either be of the type that is willing to use violence to get its reward, or not. In each stage of the repeated game, the pirates send a message to the state stating their type. The state then decides whether to use force to end the incident based on this signal.

Now, extend this simple model onto the events that have occurred over the past several month off the Somali coast. Up to recently, the game had been in equilibrium; the state's posterior belief at each stage [hostage event] about the pirates' type was that they were willing to use violence, and as such gave into their demands to rescue the hostages to minimize the loss of life (i.e., maximize the state's utility).

Over the weekend, however, the U.S. Navy took an off-equilibrium action by attacking the pirates to rescue the hostages. In knocking the system out of equilibrium, the dynamics of the system become more well-defined. In the old equilibrium, the use of violence was ex ante inefficient for pirates, since they were able to maximize their utility without using it. The use of violence, then, becomes a costly signal for the pirates, as it reveals tactics, capabilities and weaknesses.

This more robust understanding of the dynamics provides insights into the pirates' actual type; that is, pirates were either always willing to use violence, but did not do so in the old equilibrium because it was costly; or, they never were willing to and never will be, because thei beliefs about the state's willingness to use violence had been made clear, and killing hostages in the future will not increase their reward.

Regardless of this distinction, the threat of violence is clearly cheap-talk, since it does not inform the state of the pirates' type, and should not affect their actions. Put plainly, the pirates are either threatening the status quo (continued willingness to use violence), or are making a non-credible threat (new willingness to use violence). Any future policies to cope with the pirate situation in Somali, therefore, should not use these threats as a foundation as they reveal nothing about pirates' willingness to use violence.
(ht: Tony Arend and Chris Dittmeier)


Drew Conway said...

Thank you for the cross-posting. One consequence that we can now observe that is not predicted by this perspective is the increased activity of pirates (5 boardings since Monday?).

This should not, though, be inconsistent with my thoughts on their use of violence. That is, if pirates are trying to increase the amount of ships they take, violence will still be inefficient to getting their reward.

Anonymous said...

The subject of piracy is certainly dynamic. The international community seems to be gradually coming together to address the problem, particularly in the past six months.

America.gov has published a new feature package on Combating Piracy.

Please see:


Game Theory and Piracy
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