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Game Theory and Public Systems

From a game theoretic point of view, in a game, each player acts according to his incentives. He chooses a strategy that maximizes his payoff, taking into account of other players possible strategies. And in a well designed system, protocols and incentives are designed such that payoffs are maximum for a player when he follow the rules of the game (or at least most of the rules most of the time.) In other words, honesty is just a strategy and most players choose to follow it in such games.

If you look at public systems as a game, each stakeholder’s behaviour is nothing but a strategy to maximize the payoffs (money, power, authority or otherwise.) And the way our systems are designed, we penalize wrong behaviour, and almost never incentivize the honest behaviour. Most of the times, it is possible for a stakeholder to maximize his payoffs by dishonest means and to never get caught, and this is the root cause for the increasing corruption in public systems today. Anti-corruption departments (incuding proposed lokpal) focus on reducing corruption by only finding corrupt officers and penalizing them. (Delhi state government has taken it to extreme by asking citizens, who are also stakeholders in the system, to conduct sting operations to expose corruption.)

I think, we need to design our public systems in such a way that they incentivize honest behaviour. If a stakeholder gains more by being honest, as a rational being, he will choose to be honest. I understand designing such systems are hard, but in my opinion they have a better chance in fixing corruption which today seems to be a systemic characteristic of our economy and society.

As I study more about better designed systems in India and elsewhere, I will try to write basic ideas behind them in future blog posts.

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