The pluses and minuses of irrationality

Soon after the row with the Maldives started, I happened to meet an old economist friend. He used to teach game theory long ago.

Game theory is the branch of economics that analyses strategies and strategic behaviour. It’s one of the most fascinating mental exercises you can encounter. It’s also all highly mathematical.

The empirical, data based, method displaced it about thirty years ago and it’s no longer in fashion. But that doesn’t mean that it has lost its relevance for some interesting and useful analysis.

Anyway, the topic of game theory came up because my friend and I were wondering whether the Maldivian government had behaved rationally or irrationally. To Indians it looks irrational but to the Maldives it may well appear perfectly rational.

This brought up an old question in game theory in which the key assumption is that everyone is completely rational. But what if one or both players are irrational?

My friend said irrational behaviour leads to far better outcomes for the player who acts irrationally. The one who acts rationally loses out.

The Maldives case

But how can you call a strategy irrational if the player gains from it? For example, if Maldives can replace the 200,000 Indian tourists with 300,000 far richer Chinese tourists would that be irrational? Or get a lot of Chinese investors?

Likewise, what if it allows China to displace India from the defence related facilities and activities on its far flung islands? This is not just the 75 helicopter maintenance personnel it wants India to recall. It goes well beyond that.

The question for India is whether it should adopt what would appear to the Maldives as a completely irrational strategy. But what would that strategy be? Let’s wait and see.

But returning to game theory, what are the outcomes when both players are seemingly irrational? We discussed Russia and Ukraine in this context.

Except to themselves, both appeared irrational to the observers. But if their war leads to Ukraine retaining its sovereignty and Russia gaining the Russian speaking areas, both sides would have gained, albeit at a huge cost.

Many countries behave like this. The US is famous for such things. In a sense it reserves the right to act irrationally. In 1983 it invaded Grenada, a country of 1,25,000 people, in the Caribbean.

China is trying it now. It’s sitting on around 40,000 square kilometres of Indian land. Tibet is another example. As is the latest land grab in Bhutan. And there’s always Taiwan.

But irrational strategies can backfire very badly. There are lots of examples of this. The Israeli strategy in Gaza against Hamas is a good example. As was the US strategy in Iraq and Afghanistan. The Pakistani strategy in East Pakistan in 1971 also went very badly for it as indeed has the whole terrorism enterprise and its strategy in Afghanistan.

Closer home, it’s completely irrational for the Congress to persist with the Gandhi family. It’s not helping the party. Nor is its tilt towards Muslims in a Hindu majority country.

It’s equally irrational of the BJP to use anti-Muslim strategies because there are over 200 million of them in India. It’s one thing to target their institutions and legal protections but completely another to target them personally.

But game theorists haven’t been able to work out when an irrational strategy will work, when it won’t and how.

Maldives’ actions are a case in point.

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