1.
Let’s Be HonestAbout RepublicanOptions On TheBudgetTHEY’RE LIMITED

2.
Dominant Strategy

3.
What’s A Dominant Strategy? Having a dominant strategy doesn’t mean you can’t lose. It means you have one strategy that offers the best results no matter what moves your rival makes. Strategists look for a dominant strategy for themselves and for the their rivals. If you have a dominant strategy, use it. If your opponent has one, assume he’ll use his.

4.
StrategyMatters

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Game Theory Is Serious Science “A game is a situation of strategic interdependence: the outcome of your choices (strategies) depends upon the choices of another person or persons acting purposively.” –Avinash Dixit and Barry Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life War planners, smart political strategists, and successful business people study and apply game theory in most of their decisions. John Nash, profiled in the movie A Beautiful Mind, won his Nobel Prize for work in game theory.

6.
Democrats Have DominantStrategy on Budget  Democrat Barack Obama was recently re-elected President  Democrats increased their majority in the US Senate  Republicans control the House of Representatives  Polls favor the Republican position on budget, spending, and taxes  History shows that government shutdowns hurt Republicans

7.
Republican Options Are limited In the next slide is as chart that game theorists and strategists commonly use. It shows the choices for each party in Congress regarding budget, spending, and taxing. The numbers in the upper right-hand corner show the relative desirability of that strategy to Democrats. The number in the lower left- hand corner is the same for the Republicans. You will see that the Democrats have a dominant strategy, but the Republicans do not. That’s because Democrats control 2/3 of the bodies.

8.
Democrats Support Obama Completely Compromise 1st 2ndRepublicans Go along with Democrats triumph; Democrats win but vex Obama; Obama to some Republicans Republicans degree avoid blame share credit 3rd 2nd 3rd 4th Democrats lose Democrat Attack Obama most of agenda; agenda blocked Republicans look in House; fiscally Republicans take responsible and blame. tough 4th 1st

9.
Democrats Support ObamaCompletely; Republicans Go AlongIn this situation, Obama’s budget passes. If it is successful,Democrats get the credit. If the economy tanks,Republicans share some of the blame.This is the best outcome Democrats can achieve, and thesecond-worst for Republicans. 1st Democrats triumph; Republicans avoid blame 3rd

10.
Democrats Compromise;Republicans Go AlongHere, the Democrats negotiate with Republicans. Perhaps theyreplace a tax increase with loophole closing. A budget getspassed, the fiscal cliff is averted, and both parties lookstatesmanlike.This the second best outcome for both parties. 2nd Democrats win but vex Obama; Republicans share credit 2nd

11.
Democrats Compromise;Republicans AttackIf Democrats offer a compromise but Republicans stay on theattack, Republicans win. The fiscal cliff is averted, but Obamabacktracks on promises to his base.This is the best outcome for Republicans and the worst outcomefor Democrats. It is also the least likely outcome becauseDemocrats, controlling the White House and the Senate andhaving just triumphed in an election, have no reason to 4thcompromise. Democrats lose most of agenda; Republicans look fiscally responsible and tough 1st

12.
Democrats Stand Firm; RepublicansAttackThis strategy combination results in serious economicconsequences. Democrats will say Republicans crashed theeconomy because they couldn’t win at the ballot box.This is the worst possible outcome for Republicans, as they will beblamed for causing a recession. It’s the second-worst outcome forDemocrats because they control the White House and Senate.It’s also the worst short-term outcome for the economy. It may bethe best in the long run, though. 3rd Democrat agenda blocked in House; Republicans take blame. 4th

13.
Republicans Would Be Smart ToMove Last If Democrats compromise, Republicans in the House would be best to stand their ground. The Republicans can claim victory, and Democrats would share in blame if the economy tanks. Democrats would be smart to give Republicans an ultimatum. If Republicans take it, they will share in the economic consequences if things go bad but get no credit if things work out. Plus, the Republicans who vote for the compromise will face serious primary challengers in 2014.

14.
It’s Happened Before This case study comes from the 1981 budget showdown between Ronald Reagan and Congressional Democrats. In that case, Senate Democrats moved first, offering a compromise. That weakened the House Democrats’ position. Republicans stood firm with Reagan in both Houses. Democrats “out-Reaganed Reagan” by offering even larger tax cuts than the President requested. By failing to apply game theory, the Democrats increased Reagan’s influence exponentially for the next six years.

15.
Credits Much information for this case comes from a fabulous book Thinking Strategically: Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life Here’s the details: Dixit, Avinash K.; Barry J. Nalebuff (1993-04-17). Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (Kindle Location 173). Norton. Kindle Edition. Read More at www.hennessysview.com