The Game Theory of the Debt Limit Points Toward
Settlement
https://www.barrons.com/articles/debt-limit-negotiations-markets-mccarthy-biden-6e27f99a
Larry Hatheway notes:
To begin, this is not a classical prisoner’s dilemma, where cooperation is preferred, but incentives not to cooperate yield a classic “lose-lose” (in other words, suboptimal) result. That is a good thing, as the (dis)incentives point to cooperation, not self-interested defeat.
If one thinks of the possible outcomes: First, each side cooperates to reach a negotiated settlement. Second, one side negotiates in good faith, but the other does not. Or third, neither side negotiates in good faith, then the debt-ceiling negotiations are not akin to a prisoner’s dilemma because the negative payoffs (the losses) associated with not cooperating are potentially so large for both sides as to make cooperation the most likely outcome.
https://www.barrons.com/articles/debt-limit-negotiations-markets-mccarthy-biden-6e27f99a
Larry Hatheway notes:
To begin, this is not a classical prisoner’s dilemma, where cooperation is preferred, but incentives not to cooperate yield a classic “lose-lose” (in other words, suboptimal) result. That is a good thing, as the (dis)incentives point to cooperation, not self-interested defeat.
If one thinks of the possible outcomes: First, each side cooperates to reach a negotiated settlement. Second, one side negotiates in good faith, but the other does not. Or third, neither side negotiates in good faith, then the debt-ceiling negotiations are not akin to a prisoner’s dilemma because the negative payoffs (the losses) associated with not cooperating are potentially so large for both sides as to make cooperation the most likely outcome.
Related:
The Way Out of the Debt Crisis Could Lead Back
Through the Civil War
https://www.nytimes.com/2023/05/24/opinion/debt-crisis-civil-war.html
The unique absurdity of the U.S.’s looming debt
default
https://www.washingtonpost.com/world/2023/05/24/debt-ceiling-denmark-united-states-default/
https://www.nytimes.com/2023/05/24/opinion/debt-crisis-civil-war.html
https://www.washingtonpost.com/world/2023/05/24/debt-ceiling-denmark-united-states-default/