Game theory: Pitfalls and opportunities in applying it to international relations

Four problems plague game-theoretic models in international relations (IR): (1) misspecifying the rules, (2) confusing goals and rational choice, (3) arbitrarily reducing the multiplicity of equilibria, and (4) forsaking backward induction. An alternative approach, theory of moves (TOM), is discussed and applied to Prisoners' Dilemma and then, more prescriptively, to the Iran hostage crisis of 1979-80. TOM incorporates into the framework of game theory an initial state in a payoff matrix, the moves and countermoves required to reach a "nonmyopic equilibrium," and threat, moving, and order power that reflect asymmetries in the capabilities of the players. It also allows for incomplete information, which in the Iran hostage crisis led to misperceptions and flawed play. Two general lessons come out of the U.S. foreign-policy failure in the Iran hostage crisis: (1) know the game you are playing, and (2) make threats only if they are likely to be credible. In specific games, TOM provides detailed prescriptions for optimal play, depending on where play starts and the powers of the players, that could aid foreign-policy makers, especially in crises.