Sunday, April 12, 2009

Gaming economic warfare

Wiggins at Opposed Systems Design posted a link to a Politico story on an attempt to game economic great power conflict at the Warfare Analysis Laboratory. This is a fascinating concept, and I hope it's something that gets developed further.
“This was an example of the changing nature of conflict,” said Paul Bracken, a professor and expert in private equity at the Yale School of Management who attended the sessions. “The purpose of the game is not really to predict the future, but to discover the issues you need to be thinking about.”

Several participants said the event had been in the planning stages well before the stock market crash of September, but the real-world market calamity was on the minds of many in the room. “It loomed large over what everybody was doing,” said Bracken.
Bracken is precisely the person you would want at this sort of event. I've mentioned Bracken before here. It's not clear if he had any role in the design of the game, but it wouldn't surprise me if he did. Details are (as usual in this sort of story) sketchy but intriguing.
The event was unclassified but has not been made public before. It is regarded as so sensitive that several people who participated declined to discuss the details with POLITICO. Said Steven Halliwell, managing director of a hedge fund called River Capital Management, “I’m not prepared to talk about this. I’m sorry, but I can’t talk to you.”

Officials at UBS also declined to comment.

Participants described the event as a series of simulated global calamities, including the collapse of North Korea, Russian manipulation of natural gas prices, and increasing tension between China and Taiwan. “They wanted to see who makes loans to help out, what does each team do to get the other countries involved, and who decides to simply let the North Koreans collapse,” said a participant.

There were five teams: The United States, Russia, China, East Asia and “all others.” They were overseen by a “White Cell” group that functioned as referees, who decided the impact of the moves made by each team as they struggled for economic dominance.

At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese.

Bracken says he left the event with two important insights – first, that the United States needs an integrated approach to managing financial and what the Pentagon calls “kinetic” – or shooting – wars. For example he says, the U.S. Navy is involved in blockading Iran, and the U.S. is also conducting economic war against Iran in the form of sanctions. But he argues there isn’t enough coordination between the two efforts.

And second, Bracken says, the event left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. “There’s a graduated spectrum of options here,” Bracken said.
It is rare to find such a perfect example of the right way to frame the benefits derived from a game in a press report. The result that 'China won' is next to meaningless, but Bracken's comments have some real value.

On an only tenuously related note, here is a clip from that touches on Nassim Taleb's ideas about uncertainty, previously discussed here and here, as applied to the financial crisis:

This isn't directly relevant to gaming, but it does reinforce Bracken's point about the economic game not being about predicting the future, but rather about identifying issues to think about. Gaming in general is a very poor predictive tool, all the more so when applied to something as ridiculously complex as the global economy.

Disclosure: I work for on an irregular basis.

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