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How architects can learn from the Greek debt crisis



The full article can also be found here: thearchbiz.biz

Yanis Varoufakis may have resigned today as Greece’s Finance Minister, but he was a Game Theorist and used this in his negotiations with the EU over debt repayments. So could tools and concepts taken from Game Theory help architects offer a different approach to the UK’s confrontational planning system?

The current Euro crisis has been well documented. The Greeks are on their financial knees with cap in hand, as the EU request further unpalatable concessions. The banks are closed following billions of Euros being withdrawn in the last week alone. As the negotiations continue and Greece defaults, the Greek people are left wondering what next?

In times of crisis, litigation increases, but the Greek courts are already full and their judicial system is failing. Could the answer be found by 1,200 Greeks, ironically mainly lawyers, who have found the current system wanting and decided now is the time for reform? Many of them, successful lawyers in their own right, have retrained as mediators and are trying to drag the Greek public into the world of mediation as a faster and more cost effective alternative to dispute resolution. But without any mandate from Brussels on the horizon, this could be a very slow and costly uphill battle.

I had the privilege of being asked to speak at the first National Mediation and Conflict Resolution summit in Nafplio (approx two hours from Athens) last week on the use of Game Theory as a tool for negotiation. Game Theory, the study of strategic decision making, has hit the press recently with not only the tragic death of the Nobel prize winning game theorist and mathematician John Nash, (famously played by Russell Crowe in the film, A Beautiful Mind), but because Greece’s Finance Minister, Yanis Varoufakis, himself a published author on the subject, is sitting in the eye of the Brussels storm, with all of Europe wondering what game is he playing.

Game theory is the mathematical study of decision-making between people in situations of conflict or cooperation. So that means any time a decision has to be made between two or more parties, (think of Greece and the EU), whether negotiation is involved or not, Game Theory can be used to identify your ‘Best Response/Decision’. Unfortunately though, Game Theory cannot predict the future and say with 100% certainty what decision a person will make. The reason for this is quite simple. People are not always rational and ‘emotion’ gets in the way. Game Theory is interested only in cold, rational decisions.

In my presentation, I used the example of ‘The Prisoner’s Dilemma’ to show why two purely rational individuals might not cooperate with each other, even if it first appears that it is in their best interests to do so. In fact, the Prisoner’s Dilemma is not simply some abstract research game, but has real world relevance when dealing with issues such as overfishing in the Atlantic and global warming. 

The Prisoner’s Dilemma is as follows. Two members of a criminal gang are arrested and put into two separate prison cells. They are not able to communicate with each other and the police do not have enough evidence to convict either of them without a confession or one snitching on the other. The police therefore come up with a deal which they offer to each of the gang members separately. The choice for each gang member is either to stay quiet and say nothing or to betray the other gang member. Depending upon what they decide to do, the sentences are as follows:

  1. If one gang member betrays the other and tells the police the other did it, so long as the other gang member stays quiet, the betrayer will go free while the other gang member will be sentenced to three years in prison;
  2. If both gang members betray each other by saying the other one did it, they will each get two years in prison;
  3. Lastly, if both stay quiet and don’t betray each other, both get one year each in prison.

When choices and outcomes are laid out in this fashion, your best strategic decision may be difficult to identify. Game Theory therefore uses matrices to help visualise the decision making process. The above table shows the potential outcomes, also known as ‘payoffs’, as a result of the different choices available to each of the gang members. Payoffs are the numbers which represent the motivations of the game’s players. In this case, the payoffs are relatively simple and are the years they would serve in prison.

 However ‘payoffs’ may represent anything including profit, utilities or quantity. They can even represent more complex motivations. In order to make an informed strategic decision it is fundamental to know the ‘payoffs’ of all the players, not just your own. In a practical sense, architects can use the concept of ‘Payoffs’ to help not only shed light on their client’s priorities for a project but also provide the building blocks for how client motivations may relate to those of another party (such as planners). Since people want different things, for any design project to be successful it is fundamental for the architect to understand and quantify these motivations/payoffs. For this reason, we start every project with a quantitative as well as a qualitative design brief, by asking our clients to rank their requirements.

In our Prisoner’s Dilemma, since each gang member cannot control the other gang member’s decision of whether to betray or stay quiet, their best decision would be to betray (shown in blue). This best decision is called the Nash Equilibrium, named after the late John Nash, and is achieved when no player has anything to gain by changing only their own strategy. This decision to betray will mean the prisoner will either get to go free or receive two years in prison, whereas the other decision, to remain quiet, will result in either one year or three years in prison, depending on the other player’s decision.

Now of course this is over simplified. With games like this, there are many other factors it fails to take into account. The Prisoner’s Dilemma ignores things such as the value of loyalty. For example, what will happen when the individual returns to his gang if he has betrayed the other gang member? Repetition, trust and communication can all influence the way a game is played. When The Prisoner’s Dilemma is played out multiple times between the same players, with no indication of when the final round will be, players soon learn their best strategic decision is to collaborate and remain silent. Would the choice to ‘betray’ change if both gang members could speak with each other? Would they believe what the other gang member said they were going to do?

Game Theory does not pretend to provide absolute answers to questions about how to behave in strategic situations.  While real-life strategic situations are extremely complicated, Game Theory does offer a way of understanding the principles of decision making. The aim of a Game Theory model, like the matrix seen for the Prisoner’s Dilemma, is to capture the essence of the negotiation, not to draw a literal picture of it.  

We, as architects are in constant negotiation throughout the architectural process, whether negotiating with clients, neighbours or planners, to name but a few. So could tools and techniques taken from Game Theory be applied to architecture in order to help avoid unnecessary conflict and make informed strategic decisions rather than ones dictated by emotion?

During my time at the summit listening to members of the audience and the other international speakers from institutions such as the EU commission, I found myself reflecting on my own negotiations, specifically my frustrations with our planning system.

Since 2007, UK councils have been forced to reduce spending and as a result make deep cuts to services within their planning departments. I acknowledge that due to the economic situation, savings had to be made to reduce UK spending at that time. But now the Conservatives have won another term and the economic outlook has improved, I believe that reform of our current planning system is now overdue.

I am sure I am not alone in feeling that with the cuts to our planning system we have been left with an unnecessarily confrontational planning process rather than a collaborative one –although one could question whether it was ever as collaborative as it could be. Whilst our current planning system could not technically be classed as a zero-sum game, (such as in those sports where the only way a person or team can win is by the other person or team losing), parts of it, such as committee hearings, can be.

Players engaged in a non-zero sum conflict will have some complementary interests and some interests that are completely opposed. However, in a planning context  it seems the parties involved are not often interested in finding common ground.  Just look at the public hostility that recently met the proposed Garden Bridge over the River Thames connecting the South Bank and Temple. One side of this proposed project believes “the garden bridge will be an oasis of calm and beauty” while the opposition has slammed its cost, location and “abysmal” design. You will always get opposition to any project but have we created a planning process which unwittingly encourages confrontation. The result: a hostile environment with a ‘winner’ and ‘loser’.

Are there techniques and processes we could take from Game Theory to help frame a process to focus on the common interests between the parties and find a way to bargain over the remaining issues? In my view, if we want a planning system to realise mutual profit for all parties involved, two factors are crucial: communication and trust.


Communication

Some councils have not only abolished the duty planning officer system to save costs, but are denying applicants of less than 3 new build houses any face-to-face meetings prior to a submission, irrespective of fee, preparation or time.

This seems contrary to the National Planning Policy Framework (NPPF) but is a harsh and frustrating reality as we deal with the different interpretations local authorities have of new policies and EU directives. How can some councils openly discourage engagement? This environment surely encourages conflict, (and therefore a winner and a loser) because we are left with Approve or Refuse (excluding the last minute request of a take it or leave it amendment). Even when local communities are empowered to engage within the existing and slimmed planning framework, usually on larger schemes, the process is framed to unwittingly encourage confrontation. And if planning is not to be seen as a negotiation, then it has become a box ticking exercise, without clearly defining the game, rules or boxes.

Trust

A mediator must gain the trust of both parties in order to facilitate a successful negotiation. However, from my experience, the planning system has lost this trust with both applicants and the local community. This is shown in a variety of ways: from the unwillingness to provide applicants with definitive direction for their proposal to the lengthy disclaimers upon any advice; from the surprising approval of contentious schemes, often met with the mumblings of ‘dodgy deals and brown envelopes’ to the lack of continuity between sites and applicants.

Thomas C. Schelling, joint winner of the Nobel Memorial Prize in Economic Sciences, wrote in his book TheStrategy of Conflict, that Game Theory can show us there are common as well as conflicting interests between participants. Our current planning process seems to ignore this fact; its focus is on ending, not resolving the areas of conflict, so regardless of the outcome, a party will always feel at a loss.

Game Theory is effective as a tool for strategic decision making because you must put yourself in the other person’s shoes while identifying the payoffs of all the players, not just your own. This seems obvious but by putting yourself in the other person’s shoes and looking at their payoffs, you can begin to see what their likely course of action will be. You can then decide your best course of action in response. By adopting this perspective in business for example, a company can discover that its chances for success are greater if it creates a win-win, rather than a win-lose situation. In other words, companies should consider both cooperative as well as competitive strategies. Could a similar environment be created for our planning system?

Summary

From my time in Greece, it became abundantly clear that frustrations, often leading to anger, are born out of fear; fear of the unknown, stemming from a lack of communication and trust.

Embracing Game Theory as a tool for strategic decision making within our planning system will help build credibility and accountability as it takes into account trust and communication in real, quantifiable terms. Tools and concepts fundamental to Game Theory, such as matrices, payoffs and ‘putting yourself in the other person’s shoes’ will help highlight common ground between parties, encouraging a collaborative rather than confrontational approach to resolution. As problems in the real world do not usually have straightforward results, and interests can overlap, one player’s gain needn’t be bad news for the other(s).

To paraphrase Schelling, by embracing Game Theory one can first understand how participants actually conduct themselves in conflict situations – whether the players are clients, planners, developers, applicants or objectors. Then, equipped with this information, about why certain decisions are made, we can change the game, rules and payoffs in order to control or influence players’ behaviour.

The Greek/EU negotiations have been fascinating and I loved my short stay there, having been party to some amazing hospitality.  But I can’t help feeling that despite Yanis Varoufakis’s expertise in Game Theory, Greece has been playing a game it simply cannot win – but what is now a win for them? They have left themselves with the Minimax theorem – one of trying their best to simply limit their losses.   

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