The Government Shutdown Game
Twice this year the media has focused our attention on the impending showdown in Congress as lawmakers try to avoid a government shutdown and pass bills that fund the government to function for yet another short period.
It sometimes helps to model these real world political actions to focus on what the underlying issue might be, and perhaps enable the making of predictions that one might expect to follow in such settings. Game theory allows us to do this. In a typical game theoretic setting, we identify the key participants as players, we model the game then based on the rules of the game and the strategies of the players, and finally identify the outcomes in the form of payoffs to the players.
Chicken We conceive of the government shutdown as a modified game of chicken. In the game of chicken, we have two players - two drivers. The nature of the game involves both drivers coming at each other at full speed from opposing directions on a single lane road. Each player, just before impending impact, makes a simultaneous choice to ‘continue’ or ‘swerve’. The outcomes, given the simultaneous choices made by both players, are that, one player swerves and the other continues, the other player swerves and the one player continues, they both swerve, or they both continue. These four outcomes lead to resulting symmetrical payoffs that describe their rewards. If they both swerve, they have a payoff of mutual disdain, if they both continue, well...they end up with very bad crippling accidents. If one swerves while the other continues, the one who continues gains valuable gloating rights as a daredevil, while the one who swerved is, guess what? The chicken! The Shutdown Game One might now readily see the analogue of the game of chicken in terms of a government shutdown. The players here being the Democrats and Republicans. A pending deadline arrives where the government runs out of funds to operate. Each party uses this as an opportunity to try to attach their preferred policies to the funding bill. At their core their policies are diametrically opposed. They would both want to pass the bill that keeps the government funded and avoid a shutdown, but the inclusion of (or failure to include) particular bills to the funding bill leads to the possibility that some would vote against the funding bill or delay votes on the bill where possible, so the deadline passes and a government shutdown results. The shutdown represents the collision outcome in the game of Chicken. The failure of either side to budge on their policy position, is analogous to the choice of continue in the game of chicken, as this leads to insufficient votes to pass the bill and a shutdown happens. If one side compromises, so as to avoid the shutdown, i.e. swerves, while the other holds firm and continues, the compromising side - the chicken - loses massive traction with its political base and gets branded as sellouts, while the other side gains massive traction with their base by remaining resolute on its terms. If they both compromise, i.e. they both swerve, the shutdown is also avoided and while both sides lose some traction with their base it is not massive as they can each point to the other side’s compromise as a win, along with their having avoided a costly shutdown. Modifications and Implications The game of chicken is usually characterized as a one shot game. That is the game is only played once and players know this. The outcome of the game in game theoretic analysis is provided by the concept of a Nash equilibrium. Each player chooses a best response to what is known or believed to be the best response of the other player, and this is common knowledge. In this game we have two Nash equilibria (in pure strategies): The outcomes where one continues and the other swerves. Translated to the Shutdown game, this suggests a shutdown is averted because one side compromises. Now this is partially helpful, but it does not tell us which side does what. This is due to the fact that the game of chicken is a one shot game and payoffs are symmetric. This however is not the case in our real world shutdown game. In the real world we see shutdowns happen but they are usually short lived. The two we have seen this year lasted for just over the weekend, in the first, and in the second, for just about eight hours overnight. What we also observed in these two recent situations is that the Democrats swerved and the Republicans continued. Is this a prediction that we could have expected from our model or just an analysis made in hindsight to fit the fact? To answer this we need to think about how the actual game might differ from the game of chicken and to modify accordingly.
The shutdown game is not a one shot game. It is somewhat fluid, and also played repeatedly at particular intervals in time. While a shutdown lasts, opportunities to observe the implications and to change course of action continues to be available to the players. Besides, either depending on the government financing scheme already in place, or related policy concerns like breaching the debt ceiling, or the annual budget process, the shutdown game is played, so it is a repeated play game. Also the payoffs to the players involved are not particularly symmetric. The payoffs here depend on factors which include which party holds the majority in the House and in the Senate, the particular policy positions on the table, and the beliefs held by the parties in general about the impact or perceptions of any shutdown, with respect to the public and how that might translate to particular actions at the ballot box. In the current climate, the prediction of the game played is either the avoidance of a shutdown or a very short lived shutdown (easy to say after the fact). But exactly why?
The Republicans have just passed their cherished Tax Reform, muscling it through without any input from the Democrats and have no intention of slowing down. They control both the House and Senate and the Presidency and are intent on passing their agenda. ‘Continue’ is the only rational choice for them to make. But what if ‘continue’, as a final irrevocable choice, is also played by the Democrats? I will get to that shortly. Let’s look at the Democrats. They have largely been sidelined by the Republicans and this game provides them with an opportunity to obtain concessions for their base. They however have no major policy issue as a bargaining tool other than a favorable decision on the “Dreamers”, that is the DACA policy issue. It is therefore expected that they would dig in, but only symbolically, that is temporarily... they ultimately have no other choice but to ‘swerve’. They would swerve because DACA, while it is an issue directly connected to their base, affects only a relatively small fraction of Americans, the “Dreamers” themselves not being Americans, whereas a government shutdown puts potentially many more Americans in jeopardy, many of whom rely on government for the programs that the Democrats typically champion. A shutdown in this sense hurts the Democrats more than it does the Republicans. That is too steep a price for the Democrats to pay, hence ‘swerve’ is their rational choice. However because the nature of the game allows for the shutdown to be fluid as transitioning away from that is possible over any short period of time, it pays the Democrats to signal their good faith effort by holding out and letting the shutdown happen, before they ultimately back away from it. Now back to the question posed earlier. We assumed the Republicans will play ‘continue’, and we asked what if the Democrats also play ‘continue’ as a final choice. The foregoing argument in the previous paragraph is known by the Republicans, that is, they know the Democrats cannot sustain that as a final play given the fluidity of the shutdown outcome, and will therefore still play ‘continue’.
Another important dimension of this result has to do with the Republicans including in both scenarios concessions for which there is mutual benefit - in the first, the child health insurance program (CHIP) funding; and in the second, defense and infrastructure spending. You couldn't get any more unpatriotic trading these off against benefits to the Dreamers. In fact in the unlikely event that the Democrats do play ‘continue’, i.e. the shutdown persists for a protracted period, both sides know that this outcome in practice is not similar to the crippling accident suffered by both parties in the game of chicken. A government shutdown closes many, not all government offices and activities. Many government activities deemed “essential” still get carried out during a shutdown and this also includes postal activity, which operates on its own budget. Further, and importantly, government workers still get paid retroactively for missed work days, at least this has been the case historically, and for good reason. The shutdown is largely symbolic, with the real impact being felt only by those who are inconvenienced by their inability to get prior planned activities involving the government, or government agencies done. To the extent that this translates to significant ballot box activity depends on how it can be spun in the minds of the public as being catastrophic, and who really is to be be blamed. That is however a tough sell and confronting the public with mind blowing numbers that depict the cost of the shutdown can be information overload they don’t want to deal with, especially if they never really felt the impact of the shutdown negatively. So the outcome of both shutdown games we have had this year will be the Republicans ‘continue’ and the Democrats ‘swerve’, which we did observe.