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Media Infiltrations: Obama's Social Security Fine Print  The Wall Street Journal June 25, 2008 Commodity-Prices Scapegoats The Wall Street Journal June 3, 2008
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Chronicle of the Conspiracy
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Friday, January 03, 2003
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"...the U.S. government employed experts in game theory to analyze strategies of nuclear deterrence. Men with Ph.D.'s in economics, like Daniel Ellsberg, wrote background papers with titles like 'The Theory and Practice of Blackmail.' The intellectual quality of these analyses was impressive, but their main conclusion was simple: Deterrence requires a credible commitment to punish bad behavior and reward good behavior. I know, it sounds obvious. Yet the Bush administration's Korea policy has systematically violated that simple principle."
It disturbs me to hear anyone nostalgize the dangerous era of institutionalized madness when Dr. Strangelove-like academics provided mathematical rationales for the cold war policy of Mutual Assured Destruction. But fear not -- game theory is never again mentioned in Krugman's column. Its role in the introduction is nothing more than to create the impression that any subsequent arguments made by Krugman are to be understood as bearing the intellectual imprimatur of game theory. It's classic Krugman -- the intellectual bully.
And it's also classic Krugman -- the liar.
It's nothing better than a lie to oversimplify game theory as applied to global politics as "...simple: Deterrence requires a credible commitment to punish bad behavior and reward good behavior." Just read the abstract of the 1968 Rand Corporation paper by Daniel Ellsberg that Krugman referred to. The first third would seem to support Krugman's simplification, but read the whole thing.
"Whether it is called blackmail or deterrence, the art of influencing another's choice among alternatives by the use of threats is coercion. To provide a framework for representing and comparing alternatives, a game is developed, employing a payoff matrix, in which the victim has two choices, resist or comply, and the threatener has two, accept or punish. As a rule, a threat has a certain built-in implausibility, that of being costly--or irrational--to carry out. The threatener's problem is to make his threat sufficiently plausible to the victim. He may do so by means of four main techniques: (1) by binding himself irrevocably; (2) by putting up forfeits; (3) by making the victim unsure of what would be rational; and (4) by appearing to be irrational--or, as with Hitler, by [being] irrational. In the last analysis, however, since the estimates of payoffs-- or risks--are subjective variables, the answer to successful blackmail is not within the scope of logic: it is an art."
Nothing -- not one word -- in Krugman's column even begins to hint that Bush is not following Ellsberg's true, complex formulation. The best Krugman can do here is criticize the Bush administration for not using diplomacy -- it "...broke off negotiations as soon as it came into office" -- and then a few sentences later criticize it for not using force: "...even now the Bush administration hasn't done what its predecessor did in 1994: send troops to the region and prepare for a military confrontation."
What's the real problem with Bush's approach, then? Is it that he's being inconsistent? Maybe he's just "appearing to be irrational." Or is the problem Bush's failure to execute -- at the same time -- both of former President Clinton's contradictory approaches to Korea -- "by [being] irrational"?
Posted by Donald L. Luskin at 2:54 AM | link
Tuesday, December 31, 2002
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...I feel compelled to note a recent ubiquitous media abuse of statistical inference as the third year of negative US equity returns culminates. The un-fact here is the Wall Street urban legend that the market cannot decline for four consecutive years. As the headline story this weekend on CBS Marketwatch.com boldly proclaims in its lead, "If history is any guide, 2003 should be a very good year for the stock market..." since "...[o]nly once since 1896 has the market experienced four straight down years."
The pernicious logic is that since this one occasion (1929-1932) transpired during the Great Depression, the current hindered but depression-free economy cannot serve as the abode for another four-year losing sequence.
Stat 101 and common sense, though, would require that we note that the market has only endured three-year losing streaks on three occasions. The market rose in the fourth year on two of these three occasions, or in about 67% of years subsequent to a three-year losing streak. In the post-1950 period (which presumably is approximately representative of a longer data series), the S&P 500 has risen in just over 70% of years, so the market demonstrates no greater predilection to rise after three straight losing years than it does in general.
Deborah Adamson, the author of this article manifests the tendency of most people to mindlessly extrapolate. Even more absurd than her four losing years depiction, she caps the article with the inane tidbit that "'In every year ending in '5' the market was up without fail during the 20th century."
Posted by Donald L. Luskin at 2:27 AM | link