Predicting the future of Iran using game theory | Bruce Bueno de Mesquita on TED.com

Game theory is usually discussed in economics contexts, which have been the focus of this site. But the science of strategy can serve well in other contexts too. A few weeks ago my friend alerted me about how game theory was being used to predict political events. One of the prominent figures is Bruce Bueno de Mesquita, a professor at New York University and senior fellow at the Hoover Institution at Stanford. Mesquita’s predictions have had stunning accuracy, so much so that his work was detailed on a History channel show called The Next Nostradamus.

This background got me interested in learning more, and I was pleased to find that Mesquita has given a talk on TED.com giving some insight in to how he operates. In this February 2009 talk, Mesquita explains three predictions about Iran derived from his game theoretic calculations.

The 19 minute talk is available from TED.com (you can also download the video (zipped mp4 or iTunes):

Video link: Bruce Bueno de Mesquita talk on TED.com

(video subject to terms of Creative Commons license)

My reactions to the talk:

[2:20]: A non-technical explanation of game theory. I like the point he makes about understanding limitations of players. Mesquita gives the example that the mathematician Ramanujam was a great person, but limited by geography.

[3:15]: What is rational? This is a highly debated concept (see my discussion about miracles and rationality). Mesquita suggests rational simply means doing what one thinks is good for oneself. He suggests everyone except young kids and those with mental disorders like schizophrenia can be considered rational.

[4:00]: Changing the world depends on understanding influence and incentives. In game theory you do not trust someone because they like you, but rather because it is in their self interest. It is important to see where the influences are coming from.

[5:33]: To predict correctly, one has to pay attention not just to big players, but also small players that influence them. This is what makes game theory interesting is the dynamic among players.

[6:00]: Modeling such small interactions gets complicated. With five players, there are 120 connections one can model among them. This is difficult though not impossible to track mentally. The complexity scales very rapidly. With 10 players, for instance, there are over 3.6 million connections. At this stage one must use computer simulations to keep track of all the data.

[8:00]: Mesquita’s shows a slide that his model works 90 percent of the time, according to a CIA study. This is quite amazing and I am interested in reading how they came up with this number.

[8:25]: The keys to the model are simple: who are the players, what they say they want, how focused the players are, and how much power each player has. Mesquita says he uses public sources and experts to gather the inputs.

[10:15]: What isn’t needed: history! How players get to their current stage has historical importance, but not modeling importance. It is sufficient to accurately model the current situation to predict reasonably well. Interesting idea, but I wonder if taking history into account may do even better.

[11:11]: Three predictions about Iran. I wasn’t impressed by this part of the presentation which goes on for a few minutes. There was not enough detail explaining the somewhat confusing graphs.

[16:00]: Mesquita claims other complicated negotiations can be predicted, like health care, mergers, etc. Interesting hope to speed

[17:40]: The host asks an amazing question: does making the prediction public lessen it’s accuracy since parties might react to it? Rational expectations mean it’s necessary to act by surprise (see article on the Federal Reserve interest rate policy.) Mesquita’s answer: he doesn’t think his model predictions will be affected since negotiations typically end up at the same point regardless, so making predictions public may even speed the process and lead everyone to an agreeable solution without “manipulation” like economic sanctions.

What are your thoughts on Mesquita’s talk?