Part II: Climate Change as a Coordination Failure
Reader alert: this piece applies behavioural economics and systems thinking to diagnose the climate problem. It gets a little geeky.
Ok if Harari is right, why can’t we seem to mobilize resources?
Why are world leaders both in private and public sectors incapable of making the additional two-percent investment necessary to prevent catastrophic climate change? Haven’t they read the doomsday reports from the IPCC like the rest of us? Don’t they care? Why haven’t we managed to mobilize our markets and our minds towards restoration and repair, and instead continue hurtling towards exploitation and extraction? This obvious cognitive dissonance leaves many with a sense of betrayal – one of the most damaging sources of collective trauma we could experience.
Let’s talk, economics
Zooming out to the larger marionettist behind the strings, we must investigate the game within which all our human characters play in: economics. Our economy is a non-human agent, an autonomous system operating within the boundaries defined by our leading economic paradigm, the growth imperative. Branded more frequently as capitalism, the growth imperative is a set of incentive mechanisms not governed by any individual or collective, rather a self-reinforcing, self-regulating, superintelligence. This system operates more like an artificial intelligence than it does a sentient one. There is no one person we can call to pull the plug on capitalism. As Charles Eisenstein states in Sacred Economics,
“it is not, as it sometimes may seem, an evil cabal of bankers controlling the world through the Bilderberg Council, the Trilateral Commission, and other instruments of the ‘Illuminati’. The true culprit, the true puppet-master that manipulates our elites from behind the scenes, is the money system itself: a credit-based, interest-driven system that arises from the ancient, rising tide of Separation; that generates competition, polarization, and greed; that compels endless exponential growth; and, most importantly, that is coming to an end in our time as the fuel for that growth—social, natural, cultural, and spiritual capital—runs out.
Our system is now a beast of its own; it will not likely be made redundant until we empirically hit our planetary boundaries (a state that I think none of us is keen to explore), or until a superior model is defined, proven-as-concept to naturally supersede the money-system’s omnipotence.
As Buckminster Fuller says, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
But how did our economic system end up, here?
As one of the wisest thinkers in meta-systems today, Daniel Schmachtenberger explains, “economics is a facet of social architecture, inseparable from infrastructure, culture, governance, law, defense, information systems, education and human development. These systems co-evolve and co-influence each other.” Thus, to understand our economy, you must understand the principles that govern it.
The economic sub-field of Game Theory helps us to cognate our macro-challenges that power our micro-states. One of its main interests is in examining phenomena formerly qualified as “coordination failures”; states in which a group of agents (firms, governments, or individual actors) could achieve a more desirable equilibrium but fail to because they do not coordinate their decision-making. Game Theory provides a framework for modeling the expected outcomes of any given coordination event. Coordination failures tend to result in self-fulfilling prophecies.
The concept of a multi-polar trap predicts the outcome of the climate failures, blaming perverse incentives that lead to un-virtuous cycles. Multipolar traps are scenarios where the things that work well for individuals locally are directly inverse to the global well-being. There are several types of multi-polar traps, predicting different types of outcomes based on rational interests. Game Theory offers frameworks within which we can interpret predictable outcomes like climate change, and to help us workshop solutions around them.
Climate Change as a Multi-polar Trap
Climate change mitigation strategies are often construed as a prisoner's dilemma; an outcome in which the collective best interest is never served, but is theoretically inevitable given the set of known options available to each agent. This scenario provides for only one Nash Equilibrium; an outcome predicated upon asymmetric information that results in agents incentivized to select for a globally sub-optimal outcome. Operating on logical faith that other parties in the game will not rationally take the optimal route, others are strongly incentivized to betray their partner. In this case, no player has an incentive to deviate from their chosen strategy (or in the case of climate, to protect ecological systems), considering the likelihood of an opponent's choice, based on their known information. A game theorist who frames climate action as a prisoner’s dilemma nihilistically tells us there’s nothing we can do; investments in mitigation measures are reasonable only if players expect positive returns in the short to mid-term. If business-as-usual is always in countries’ best interests, climate treaties are doomed to fail.
But I see another game theoretic trust dilemma, called the Stag Hunt, as a more realistic (and optimistic) framework through which to assess climate mitigation. The stag hunt differs from the prisoner’s dilemma in that there are two pure-strategy Nash equilibria: one where both players cooperate, and one where both players defect. The outcome of cooperation yields a far better result, globally. Here is where it gets exciting.
So how does climate mitigation land in a more hopeful Stag Hunt over the hopeless Prisoner’s Dilemma? In real-life coordination games between nation-states, the game is an iterated one; one which does not have a definite conclusion. This allows for multiple outcomes and reinforcement techniques, like iterative and enforceable contracts. Additionally, given that climate negotiations typically occur in public forums, players each know a lot about how the other players think, and there are clear reputation networks that provide for the potential to punish defectors and reward cooperation. Most problems which initially seem like Prisoner's Dilemmas are actually Stag Hunts, because there are potential enforcement and coordination mechanisms available. This allows for situations where players can theoretically get into cooperative equilibria.
The challenge with the climate problem (well actually, all global problems – barring ubiquitous surveillance) is that you can't unilaterally decide everyone should be in the cooperative equilibrium, nor can you monitor all of their moves. And in international games with exotic decision theories, it gets increasingly complex to enforce against defectors. We solve these issues nationally with the monopoly of violence and law (you can log or fish in zoned areas, but national parks are off-limits) but rigorous enforcement is almost impossible on a global scale.
In practice, a cooperative norm may be established, until any party identifies that it is personally advantageous to defect. Once one defects to satisfy their own short-term interests, a “grim trigger” will ensue. Defection begets further defection as economic advantage accrues to the people operating within the structures of the game. In order to keep up with the Jones’, and not lose at the bigger game (generally summed up as not dying – or in capitalism, continuing to grow), the game incentivizes every other player to defect, until a new equilibrium is established, but with everyone mutually worse off. This ultimately results in destructive defection. That’s the trap. A simple example would be the following: someone at a concert stands up to see the stage better. Everyone else must also stand, or have their view blocked. Thus, the view of the stage is no better, but everyone is now standing for the rest of the performance. Universally sub-optimal.
How come our benevolent leaders are not above all of this? Governance 101
Why do we nearly always end up taking the defection route? For those who haven’t watched Rules for Rulers, highly recommend it as a clear illustration of why we humans keep getting co-opted by the lesser angels of our natures. It establishes rules by which all rulers – whether monarchist, autocratic, or democratic – are sadly fated to trend towards. Coordination games that lead to the same failed outcomes. Centered around the core human driver of attaining power and status, it proposes that each structure is bound for a race to the bottom. Let me explain.
All countries lie on spectrum from those where the rulers need few key supporters to those where they need many, but in every case, the rules of the game are the same; get key people on your side by offering incentives (usually power or money) and continue to reinforce your power with their support.
The throne and the despot might appear omnipotent, but in both cases, their strength is dependent upon the support (whether earned or by coercion), of defense (army) and enforcement (law). If a leader decides to benevolently fund its citizenry or state-interests out of the finite purse, then less money is available for cronies, exposing the benevolent leader’s cronies to being co-opted by their power-hungry rivals. In effect, doing the right thing: spending the money of the nation on its citizens, hands a tool of power acquisition to rivals, and leaves the well-intending leader vulnerable to replacement. “When violence or manipulation rules, the most ruthless are attracted; angels that build good works will lose to devils that don't”. So the conclusion is: buy all the loyalty you can, whether directly, or by influencing policies. You'll fight against those who didn't take the bribe if you stand on your moral high horse.
Long-story-short, you can’t really have enlightened rulers long-term as benevolence is a trait not selected for in game of world dominance. If any person is not constrained by values, they succumb to whatever corruption is required to win the game and ultimately overtake those who are constrained by values. Absolute power corrupts absolutely. If anything, power politics is a selective pressure for the elevation of bad characters, the corrosive influence of sociopaths and narcissists who often rise to the helms at the expense of anyone in their way. In practice, this manifests as incentives to build faster and harder, recognizing the first-mover advantage, and reaping all its benefits for themselves.
Climate Change as a Tragedy of the Commons
This story is what happens in the tragedy of the commons. A situation in which, individuals, acting rationally in their own self‐interest, nonetheless act irrationally as a collective group by irreparably depleting a resource that is owned in common. The current climate change crisis is an example of ‘the tragedy’ on a global scale. It is a form of multipolar trap.
The tragedy of the commons occurs when an economic good is both rivalrous in consumption and non-excludable. A rival good means that only one person can consume a unit of a good and, when someone consumes a unit of the good that unit is no longer available for others to consume. A good that is non-excludable means that individual consumers are unable to prevent others from also consuming the good before they get their hands on a unit of it.
‘The tragedy’ arises because the incentive for each user to make sacrifices for the benefit of the common resource is significantly less than when it is a resource is privately owned. Each consumer maximizes the value they get from the good by consuming as much as they can as fast as they can before others deplete the resource, and no-one has an incentive to reinvest in maintaining or reproducing the good since they cannot prevent others from appropriating the value of the investment by consuming the product for themselves. Hence: rush to mine the gold and oil, clear the trees and fish the fish. Liquidate all of our cultural and natural commons first, or someone else will.
Worst still, because efforts that are made to preserve the common resource benefit all users in equal measure, whether or not they have made the necessary sacrifices, this scenario actively discourages maintenance. These gains are necessarily shared equally by all users, leading to the ‘free rider’ obstacle. The dilemma therefore arises due to the difficulty in privatizing the benefits gained through an individual’s sacrifices to preserve the commons.
A mathematical model of climate change scenarios according to the Tragedy of the Commons
While the above clearly presents some daunting realities. I am not yet discouraged. I do not see these frameworks deterministically so, rather as useful guiding tools to evaluate geopolitical options. Like guard-rails for a decision tree. Let me illustrate.
Here we have depicted a short-term assessment of global climate policy might look like if there were no real threat to the environment. This is how leaders at the dawn of the Industrial Revolution who gayly struck oil, would likely have acted. In this scenario, protecting the environment is costly and has a limited benefit that is far outweighed by the benefit of simply using the environmental resources at maximum efficiency. Thus, the rational behaviour for all world leaders is to exploit the ecological commons.
However, in the tragedy of the commons (the reality of 2022, following two hundred years of unfettered extraction), the continued exploitation of a resource makes the resource scarcer. It is now a trickier situation. This model could be applied to any finite resource, but for this exercise, we are considering it as the sum of the planetary boundaries, all of which degrades in time as it is exploited and polluted faster than Mother Earth can regrow and repair. Here, the payoff of exploitation diminishes to zero and protection becomes increasingly attractive. A hypothesis based purely on mathematics, this portends that there will be a point at which all stakeholders get their shit together and protect the environment.
Now the big question is, will it take near environmental collapse for us to finally see the light?
So it now makes sense that we have Climate Change
Climate change and ecological destruction are classic collective commons problems. Our system keeps corrupt power in charge, we are directly incentivized against long-termism, and towards maximum exploitation out of rational self-interest. In economic theory, these are collectively called “perverse incentives”. To combat this phenomenon, what we really need are structures to motivate better-aligned incentives.
How do we avoid misaligned incentives? How do we fix perverse incentives at large? How can we identify externalities and internalize them? We expound on these generator dynamics and tools to support them in the next thread.
Stay tuned for the next drop!