"...This summer’s negotiations over raising the debt ceiling seemed to present Democrats and Republicans with a similar dilemma. Failure to reach a deal threatened to bring on the economic equivalent of a nuclear winter. The leaders of the two parties, Barack Obama and Speaker of the House John Boehner (R-Ohio), appeared to grasp this, but a vocal band of “Tea Party hobbits,” as their fellow Republican, John McCain of Arizona, dubbed them, refused to go along. They made it clear they were not only willing to bear the catastrophic consequences of a U.S. default, but that they might actually welcome it. Trapped in a classic game of “chicken”—a term game theorists use, too—in which both players entertain the option of killing everyone, the President did what game theory suggests a rational actor would do. He recognized his potential maximum losses were greater than his opponent’s. He caved.
"Obama’s decision to agree to a deal that calls for $2.1 trillion in spending cuts over 10 years, with no increases in revenue, was greeted with scorn among his own supporters and disdain from global markets, which plunged at news of the accord. Meanwhile, Tea Party Republicans complained that the agreement didn’t go far enough. The outcome of the debt ceiling talks left everyone in a foul mood, not least the President himself, who signed the final legislation on Aug. 2 in the Oval Office, alone and grim-faced.And yet for all the collective self-loathing that attended the debt ceiling talks, it’s important to remember that, like just about everything in human behavior, it was still reducible to a game. Looked at through the prism of game theory, it’s hard to see how the outcome could have turned out any other way….."
Find out more at http://www.businessweek.com/magazine/the-debt-ceiling-deal-the-case-for-caving-08032011.html
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