Globally, strategies and decisions of 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 about what others might do creates asymmetry. Not only do their decisions depend on the visible actions of others, which they take for granted in many situations, decision-makers also pay attention to alternative scenarios of possible actions by others. Thus, these strategic interactions can be modeled using game theory. Of particular importance are strategies employed by countries during war or tensions with adversaries. The ongoing tensions between China and Taiwan is one such scenario that could be analyzed from a game theory perspective.
In this case, think of the policy makers of China and Taiwan as creators of the game. This game may contain private information, meaning both sides are unsure of each other’s strategy but have some information in the form of knowledge of each other’s strategic decisions. The policy makers or rulers of these countries can change the payouts and game structure to achieve a situation that is best for each of them. To this end, game theory helps to identify the possible best situation in the confrontation between China and Taiwan. However, there are several “best” situations, and theory doesn’t tell us which would occur.
The basic elements of this game are as follows. There are a small number of decision makers who interact, referred to as “players”; in this context, these are the heads of both opponents. China and Taiwan have a number of possible actions they could take; such actions are called “strategies” and once both sides of the game choose theirs, an outcome is realized in which both receive “payoffs” that can be viewed as benefits of their specific actions. Thus, the scenario in question could be represented as a “two-player two-strategy” game.
If China and Taiwan go to war, both combatants would initially lose weapons, soldiers and their peace, with worse repercussions associated with armed hostilities. However, the net gain or benefit in this case could be far better for China since Taiwan is a small country and has much tighter restrictions on the weapons and soldiers it can deploy. If Taiwan does not respond to Chinese provocations and submits to Beijing, then China has an advantage, and this may explain why Beijing is demonstrating its military prowess by firing missiles and using other armed maneuvers to intimidate Taipei with the possible intent of subverting its to get template this way.
If both countries opt for the option of not going to war, which might be the best solution for both, some kind of bilateral agreement might have to be signed, in which Taiwan would have to comply with a set of conditions that are unacceptable to both sides are. resulting in a suboptimal solution.
An important aspect worth mentioning here is that tensions between these actors have existed since the mid-20’s. China is adamant on integrating Taiwan’s governance into its own, for which it logically prefers peaceful reunification, which is also its interim policy, but without abandoning the use of force as an option to achieve that goal. The strategy that can be adopted by the USA in this game is unpredictable and hence a clear payoff for it cannot be easily worked out. Moreover, China has so far adopted a soft policy towards Taiwan in terms of actual harm infliction, and thus possible strategies by both sides are unpredictable.
Another aspect to consider is whether there would be a “dominant strategy” or a “Nash equilibrium” in this game. A dominant strategy is an action that is better no matter what the other country does, and a pair of opposing strategies is in a Nash equilibrium when China’s choice is optimal given Taiwan and Taiwan’s choice is optimal given China. However, as an analysis of the scenario shows, there is neither a dominant strategy nor a Nash equilibrium in this case.
What we have are opportunities for sequential games, as countries tend to move sequentially, not simultaneously, and in these cases games are resolved by determining what countries will do in the last phase, and then what they will do in the penultimate phase will do. etc.
As we examine each phase, we consider the actions expected in later phases. Since US involvement in this game cannot be ruled out, the Sino-Taiwan standoff could broadly be viewed as a back-to-back game, with some possibilities for solutions to be worked out over time through peace deliberations.
Exogenous factors that could be included in this model would give us even more complicated results for this game. Chinese forces have demonstrated their ability to encircle Taiwan by sea, impose a blockade and even stage a full-scale invasion. A strategy to block all global shipments to Taiwan by blocking imports of sea freight would be seen as an act of Chinese aggression even if no invasion followed.
Note that despite its de facto self-government, the United Nations has not recognized Taiwan as a separate national jurisdiction, and neither have most countries in the world, further complicating the story. However, should ongoing tensions escalate and peace in the Indo-Pacific region be at stake, all countries must stand together to avert another war.
These are the author’s personal views.
Surjith Karthikeyan is an Indian Economic Service official working at the Ministry of Finance
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