Opinion
What game theory tells us about China-Taiwan face-off
Summary
We could expect a sequential game to play out between the two in the absence of any dominant strategy or Nash equilibrium
Globally, strategies and decisions taken by individual countries are not based on a perfect information scenario. In general, while individual jurisdictions and groups do not ignore the possible actions of other countries and groups, a lack of information on what others may do results in asymmetry. Their decisions not only depend on visible actions by others, which they take as a given in many situations, decision-makers pay attention to alternate scenarios of potential action taken by others. Thus, these strategic interactions can be modelled using Game Theory. Of special relevance are strategies adopted by countries during war or tension with adversaries. The ongoing China-Taiwan tension is one such scenario that could be analysed from a Game Theory perspective.
In the case under discussion, think of policymakers of China as well as Taiwan as designers of the game. This game may incorporate private information, which means that both sides aren’t sure about the other’s strategy but have a little information in the form of knowledge about each other’s strategic choices. The policymakers or rulers of these countries can change the payoffs and structure of the game in order to obtain a situation which is best for each of them. To this end, Game Theory helps identify the possible best situation in the China-Taiwan confrontation. However, there are multiple ‘best’ situations and the theory doesn’t tell us which one would occur.
The basic elements of this game are as follows. There are a small number of decision-makers who interact, called ‘players’; in this context, these are the heads of both adversaries. China and Taiwan have range of possible actions that they could take; such actions are called ‘strategies’, and once both sides of the game choose theirs, an outcome is realized wherein both receive ‘payoffs’, which may be thought of as the utility of their specific actions. Thus, the scenario in question could be depicted as a ‘two-player, two-strategy’ game.
If China and Taiwan go to war, both combatants would lose weapons, soldiers and their peace, for a start, with worse effects that accompany armed hostility. However, the net payoff or advantage in this case might be far better for China, as Taiwan is a small country and has much tighter limitations on the weaponry and soldiers it can deploy. If Taiwan doesn’t respond to Chinese provocations and submits to Beijing, then it is advantage China, and this might explain why Beijing is showcasing its military strength by firing missiles and using other armed manoeuvres to intimidate Taipei, with a possible view to obtain its submission this way.
If both countries choose the option of not going for war, which may be the best solution for both, then some sort of bilateral agreement may have to be signed wherein Taiwan would have to adhere to a set of conditions that’s not mutually acceptable to them, leading to a sub-optimal solution.
A key aspect worth mentioning here is that the tension between these players has long been in existence, right from the mid-20th century and can also be analysed as an indirect game being played between China and the US (as the chief backer of Taiwan’s self-rule). China is adamant on the integration of Taiwan’s governance with its own, for which its preference is logically peaceful reunification, which is also its preliminary policy, but without giving up the use of force as an option to achieve that goal. The strategy that may be adopted by US in this game is unpredictable and so a clear payoff for it cannot easily be worked out. Moreover, China has so far adopted a soft policy towards Taiwan, in terms of actual infliction of damage, and thus possible strategies from both sides are unpredictable.
You might also like
What’s adding sparkle to Nykaa shares
The investment strategy of Sanctum Wealth’s Shiv Gupta
Why investors in SBI stock still have hope
How to read the signals from our call money market
Another aspect worth consideration is whether there would be any ‘dominant strategy’ or ‘Nash equilibrium’ in this game. A dominant strategy is an action which is better no matter what the other country does, and a pair of opposing strategies is said to be at a Nash equilibrium if China’s choice is optimal given Taiwan’s, and Taiwan’s choice is optimal given China’s. However, as an analysis of the scenario shows, there is neither a dominant strategy nor Nash equilibrium in this case.
What we have are possibilities for sequential games, as countries tend to move sequentially, not simultaneously, and in these cases, games are solved by determining what countries will do in the last stage, then what they will do in the second-last stage, and so on.
When we examine each stage, we take into consideration the actions expected in later stages. As US involvement in this game cannot be ruled out, the China-Taiwan standoff could broadly be seen as a sequential game, with some openings for solutions that could be worked out through peace deliberations along the way.
Exogenous factors that could be considered in this model would give us even more intricate outcomes to this game. Chinese forces have shown their capacity to encircle Taiwan by sea, enforce a blockade and even mount a full-scale invasion. A strategy of blocking all global supplies to Taiwan by cutting off the entry of sea cargo would be seen as an act of Chinese aggression, even if no invasion were to follow.
Note that the United Nations hasn’t recognized Taiwan as a distinct national jurisdiction, despite its de facto self-governance, and nor have most countries of the world, which further complicates the story. However, should the ongoing tension escalate and if peace in the Indo-Pacific region is at stake, all countries would have to stand united to avert yet another war.
These are the author’s personal views.
Surjith Karthikeyan is an Indian Economic Service officer serving in the ministry of finance.
Elsewhere in Mint
In Opinion. Siddharth Pai writes on a marketing spin and the hard reality in IT services industry. Pankaj Mishra argues why Rishi Sunak should not pander to the base. Long Story previews a coming Sebi storm for fintechs.
