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Game Theory #5: The World Game

Original Transcript

Today we examine the question: why is it that states, countries, nations rise and fall? So let's start off with an example that you know pretty well. This is the Warring States period, and at this point in history there are many powerful states — the Chu, the Zhao, the Wei. And if at this point in history, around 250 BCE, I asked you to figure out using game theory which state would unite China and become the first great empire, you would look at certain metrics. Obviously you would look at population — who has the largest population? Then you would look at resources, which basically means farmland, so which areas had the most rivers. And then you would also look at technology — which state has the most scientists, the most advanced literature and arts. From these metrics you could do some analysis and figure that maybe Chu would conquer all of China at some point. But at no point using any metrics would you assume that Qin would conquer China. First of all, it's in the mountains, so it's pretty poor. Second, it's far away from the rivers and trade routes. And third, it's pretty isolated. You could not possibly imagine that the Qin dynasty would conquer China. But in fact, it is the Qin that came and conquered all of China.

And not only that, but if you look at most of human history, this pattern repeats itself. If you look at a region, the strongest nation does not come out on top. It's usually the weakest, most marginalized area that will eventually come and conquer the entire territory and create an empire. Clearly the way that we understand history is problematic. It's wrong. So what I want to do is propose to you a new way to understand how empires come into being. And this was actually first proposed by a Muslim scholar and historian named Ibn Khaldun. He proposed the idea of asabiyyah — and all this word means is basically cohesion or group solidarity. His theory is that yes, the people in the margins are poorer, but because they're poorer, they're more unified. They focus more on solidarity, on working together. Whereas in the rich areas, people become too individualistic, too decadent, too corrupt. And ultimately that's why it's always these tribes from the margins that actually conquer the wealthy, civilized areas. This is a pattern that repeats itself throughout human history all the time — almost like an iron law of history.

So what I want to do is show you that there are actually three metrics that you can use to measure how dynamic a society is and how likely it is to triumph in the end. These three metrics are energy, openness, and cohesion. Cohesion just follows the idea of asabiyyah — how likely is it that these people are willing to work together? Do they see themselves as a team? Are they willing to sacrifice themselves for each other? Are they a family? Openness means how willing you are to adapt, how much you're willing to accept your limitations and be resilient. You can think of openness as humility and resilience. Energy just means that you're willing to work hard, you're focused, you have a clear goal, and you're motivated to achieve it.

These three metrics tell us how dynamic a society is going to be. And using them, we can now better understand why the Qin dynasty was able to conquer all of China. The idea is that if you're rich, what often happens is that you have low energy — the elite don't want to work anymore, they'd rather just exploit others. And because the people are being exploited and are too much in debt, they have low energy as well. It's not really about building a great nation anymore, it's just about getting by. Then there's openness: the elite become extremely corrupt, very insulated, very arrogant, and so they refuse to admit that they're wrong. As a result, society becomes stagnant. And cohesion: because of wealth inequality and corruption, people are much more individualized and atomized. This allows a new group to come in and conquer everyone.

Let me use another example — the Greek city-states, which represent the height of human civilization. They gave us Homer, Plato, Phidias, Sophocles — basically the basis for all of Western civilization. For most of their history, the Greek city-states were small cities, about a thousand people each on average, with some bigger ones like Athens which at its height had about fifty thousand people. Athens, Thebes, Sparta, Corinth, Argos — these are the major ones, always in competition with each other, very much like the Chinese Warring States. And if we looked at the year 500 BCE, you would think that maybe Athens or Sparta would emerge as the grand unifier. In fact, Athens did become an empire, but then the other Greek city-states started to attack Athens and Athens declined over time.

The advantage that Athens had over everyone else was tremendous. Athens had the greatest navy; it could control the trade routes in the Aegean and was therefore the wealthiest city-state. It had the greatest population, the most innovation, the most strategic location, the most wealth. You would just assume Athens would come to conquer all the Greek states. But in fact it was the Macedonians who came in and conquered all the city-states. At this time in history you couldn't possibly imagine that — the Macedonians were poor, isolated, not very cultured, uncivilized. But again, they had energy, openness, and cohesion. And that allowed them to conquer the city-states. What's most amazing is that even after this area was unified, the Macedonians would then do the impossible and go on to conquer the great Persian Empire — the first great empire in human history, covering Egypt, Anatolia, Mesopotamia, Persia, everywhere. In about ten years' time, the Macedonians under Alexander the Great crossed the Aegean, landed a small force, and very quickly conquered the entire Persian Empire.

And then a few decades later came the rise of the Romans. Who are the Romans at this point in history? Rome is somewhere on the Italian peninsula, which is being colonized by the Greeks. The Romans — these poor, backward tribal people — eventually come to conquer the entire Italian peninsula, then the Greek mainland, then Carthage, and create the Roman Empire. This is a pattern that repeats itself throughout human history: the empire becomes corrupt, lazy, arrogant, and this gives opportunity to a troubled people — whether it's the Macedonians, whether it's the Qin, whether it's the Romans — to come and conquer all of them.

Let's look at the Aztecs as an even more stark example. This is about the fifteenth and sixteenth century. The Mexican peninsula is divided into different warring city-states, very similar to the Greek and Chinese situations. Then the Aztecs come in from the north — a poor tribe that's starving, coming from North America in search of food. They're a warrior people, so they're hired by other city-states to fight for them. Eventually they become too powerful, so they're isolated onto a marsh. Everyone assumed they would starve to death in this marsh. What's amazing is that as a people they became very creative, turned this marsh into farmland, and over time slowly came to conquer everyone. They established the Aztec Empire, which ruled over millions and millions of people.

And then one of the greatest mysteries in human history: a group called the conquistadors from Spain — only about five hundred of them — arrives around the year 1519 and in a very short amount of time conquers the entire Aztec Empire, and Spain comes to rule basically all of South and Latin America. Even though we have a formula in place — whichever group has the most energy, is the most open, the most cohesive, will conquer the other groups — it still doesn't explain how this happened. How was Hernán Cortés with five hundred conquistadors able to come in and conquer a land of millions? Historical explanations include disease — people from Spain had diseases and the Aztecs did not have the immune systems to counter them. Another explanation is that the Aztecs believed the conquistadors were gods and therefore surrendered quickly. Another explanation is that the conquistadors had local allies who were resentful of the Aztecs. But these explanations sound okay, yet they don't actually give us the full picture of what really happened.

Let me look at one more example — one of the early civilizations in human history, considered the first great civilization: the Sumerians. Looking at a world map, Mesopotamia is the center of the world because if you want to access the rest of the world, you have to go through it. The center of Mesopotamia is a place called Uruk, which is the meeting place of the Euphrates and the Tigris, giving access to the Persian Gulf and then to India, or the Indus Valley civilization, then onward to Egypt and north to Anatolia. Uruk became the first great world city because it was the center of all global trade — different people came together to establish a trading post, and over time it grew and grew and grew because it was very wealthy. And then eventually these different city-states came into conflict with each other, the same process as with the Chinese Warring States and the Greek city-states. And you would assume that one of these city-states would conquer the rest — but in fact again it was these tribal mercenaries from an isolated region called the Akkadians who came and conquered everyone else. After they built the first empire, other people came over and conquered them as well, then people from the Zagros Mountains — the Persians basically — came in and unified the entire area and created the Persian Empire. So this is a pattern that emerges throughout human history.

Now let's go over exactly what happened — and I will show you that as nations rise and fall, the games they play change. In the beginning, you as a people need to come together and build a land in which you can all prosper or at least have food to eat. Therefore the game is cooperation, and the mechanism of cooperation is actually religion. In this first game, what you're trying to do is create a dynamic religion that motivates people to be energetic, to give them a reason to work really hard. The people who are best able to articulate this religion become the elite — and this includes poets and priests. At this point in history it's basically a startup: everyone is enthusiastic, everyone is working hard, everyone feels as though they're making a positive contribution to the world.

But over time, what happens is that the elite become hereditary. The game becomes: how do I, the elite, pass on my privileges to my children? The way they do that is by changing the religion. The religion now becomes almost like a bureaucracy. In the first game, the religion is about energy, creativity, and working together. But then in the second iteration, the religion becomes a bureaucracy — you must follow the rules of the game. The rules of the game are set, there's a hierarchy, and you must obey this hierarchy.

Then what happens is a process called elite overproduction. These privileges are being passed on to the children, but over time there are too many children. Society breaks up into different factions, usually divided according to the princes. If there are four princes about to inherit the throne, there are four different factions that support them — though the prince is not necessarily the leader of the faction, just the symbol of it. At this time in history, the way they reduce conflict is that the losing factions move away, they're exiled, and then they have to set up a new colony. This process continues where the losers of the game are forced into exile until there's no more place to colonize. And now you have the Warring States period.

The Warring States period is actually a time of maximum creativity for a civilization. Why? Because of open cooperative competition. Back to the Qin, back to the Greeks, back to the Sumerians — there are different colonies all competing against each other. So you need to be open and innovative if you're to triumph. At the same time, they're trading with each other, sharing best practices, sharing innovations. This leads to the idea of open competition, which marks the height of the civilization. China has been around for five thousand years, but the most innovations happened during the Warring States period of about one hundred years, when Confucius, Mencius, and Laozi all lived. And if you look at other civilizations, it's the same: during the classical period, the Greeks basically created everything that becomes the foundation for Western civilization.

Eventually what happens is these city-states figure out that yes, the game is to compete against each other, but you can also choose to work together. How? By intermarriage. And the idea of intermarriage creates the idea of equilibrium. At this point in history, warfare becomes organized warfare. Before, warfare was about innovation. But now, when the elites from different city-states intermarry with each other, they have a new equilibrium — they are above the state. When they fight, it's not really about fighting each other anymore. It's about reducing their population to maintain control, to resolve the elite overproduction issue. Warfare becomes a mechanism of population control.

So even though these city-states are still in theory competing against each other, they have essentially reached an equilibrium. Before, during the Warring States period, it was a game to see which state would be the best, the most innovative, so you invited people who could contribute the most — you were a meritocracy, you only promoted the best and the brightest. Once you reach equilibrium, you don't have to do that. All you have to do is maintain the status quo. So what happens is you create a rigid hierarchy, and what matters is who reaches the top of that hierarchy. As a result, you create court politics or factional struggle.

If you look at any court politics, the faction that triumphs is the one that's able to solve three problems: secrecy, trust, and coordination. In theory, everyone has to obey the bureaucracy. But if you just play by the rules of the game, you're going to lose. So you want to cheat in the game. But if you want to cheat, you have to do so secretly. That creates the problem of trust: how do you trust each other if everything is done in secret? And then how do you coordinate, how do you move together? You can't have meetings where you take notes because if you're discovered, you'll all be executed by the other factions.

Historically, the way we resolve this issue is through the idea of secret societies. And this is true for China, for the Greeks, for the Aztecs, for everyone. The first aspect is secrecy, achieved through hierarchy and compartmentalization. Within each secret society there's a hierarchy where only the people at the very top know what's going on. If you want to join, you are initiated at the bottom and slowly climb the ladder. This maintains secrecy. Trust is achieved through transgression: if we cheat together, we are much more likely to trust each other, because if you're caught you all get punished. The most basic type of transgression is the idea of ritual sacrifice — you basically decide together to capture someone and kill them in a ritual. Then to solve the problem of coordination, you have the idea of eschatology — essentially mythology: why are you guys doing what you're doing? The answer often is: because we're trying to serve a higher god that wants to conquer the world, and we are his servants in this quest to create a paradise. Different secret societies have different eschatologies but the system is the same.

And what happens — and this is really important — is that every faction has to form its own secret society. Now the game of empire becomes one of a struggle between different secret societies. You don't care what happens to the empire. You don't care about the enemies of the empire. All you care about is that your team emerges on top. So what does that mean? You become insular. You become corrupt, because you need resources to play this game, so you steal from the people. And you become divided. This is what happens because of the different factions within the empire or the equilibrium: they become insular, corrupt, and divided. Which is why they ultimately lose to the tribes in the borderlands, because the opposite of insular is open, the opposite of corrupt is energetic, and the opposite of divided is cohesive.

Now we understand why ultimately the borderland tribes are able to conquer the empire or the equilibrium. But there's actually more to this. What happens is you have the different factions, the secret societies, fighting against each other. And from their perspective, all they care about is winning against the other factions. So what do they do? They invite other foreigners to come help them — these are what are called mercenaries. And these mercenaries are absorbed into the secret societies through eschatology, through transgression, through hierarchy. There's always contact through trade, banditry, and mercenary service. These people from the borderlands are so poor they'll do anything to survive: they'll trade with you, they'll steal from you, and they'll come and fight for you. And through trade they're becoming wealthier, through banditry they're becoming wealthier, and by working as mercenaries they're learning the best technology, the best fighting skills, the best weapons. Then what happens is the mercenaries eventually take over. At first they merge in, but then the mercenaries just kill everyone and take over. That's how the Qin were able to conquer the Warring States — according to game theory, what happened was that different factions of these different states were actually inviting the Qin in, and the Qin conquered them one by one. Same thing with the Macedonians: they came in and helped one city-state, then that city-state, then moved on to the next. But it was always a certain faction of that city-state that invited the Macedonians in the first place.

This is a pattern that repeats itself throughout human history. So if you want to know what's going to happen today and tomorrow, just figure out which areas of the world are the most energetic, most open, and most cohesive, and then figure out which empires are the most corrupt, most insular, and the most divided. Then you'll figure out who will conquer who.

Now I'm going to give you two more examples to better illustrate how this works. When I was in high school in Canada, we played a game called the World Game. You're put into a team of maybe four or five players, and each team is assigned a country — USA, Britain, India, Pakistan, Japan. Each team is given an envelope with certain resources: paper, scissors, a ruler. Then there's an organization called the World Bank. What you're trying to do is become the wealthiest country in the world by taking your resources and turning them into commodities that the World Bank buys from you — triangles, circles, squares. But to create these commodities you need resources, and different countries have different resources. The United States has everything. Pakistan usually gets nothing. But you're allowed to trade with each other. So even though you have nothing, you can go to the United States and beg: "Can I please borrow your ruler?" Or go to Britain: "Can I borrow your paper?" Or offer to work for free.

You play this for one day, and it's really interesting what happens. Usually what happens is that the United States becomes number one — because the United States just has everything, it's the wealthiest country. But number two is interesting. You would think it would be Japan or Britain, but it's actually Pakistan — the country that starts out with nothing at all. Why? Because they're forced to be the most energetic, the most open, and the most cohesive. Team members have to go and beg, work for free, and some go and lie and cheat and steal. They're forced to be resourceful and creative. That's how the world works, guys. Just because you have the most resources, just because you have the most people, does not mean you'll win the game. What matters is how energetic your people are, how open they are, how resourceful they are. And often they are open, energetic, and cohesive because they're poor. Poverty leads to creativity.

Another thing: if I were to surmise about the future, I would say that right now in East Asia, North Korea has a better future than China. That sounds impossible — North Korea can't even feed its own people. But if you know game theory and you understand the principles we've learned today, you're forced to conclude that in East Asia, North Korea has a better future than China, because ultimately it's about how open, energetic, and cohesive the people are, as opposed to how rich and powerful you are.

Another example: before I was teaching game theory in high school, I was teaching teachers how to teach STEM. I would run two-day workshops and I would divide the faculty — teams of four or five, maybe ten teams. I would give them an assignment and resources and make it a competition: which team can build the fastest toy car, the best airplane, the best catapult. They would work the whole day. At the end of day one I would rank the teams. Then on day two we would start a competition again with a new assignment. And which team finishes first on day two? Team ten. The results are reversed. Number ten shoots up to number one and number one falls all the way down. If you're the best student in school, you never have to reflect. You never have to think about how to improve because you're always number one. So you become arrogant, you become complacent. But if you're the worst student in school, you're used to being laughed at, used to constantly adapting. When you go into the workplace, you're much more likely to learn and much more likely to focus on relationships. In China, there's a joke: in school there are two people that everyone hates — the best student and the worst student. Why do you hate the best student? Because he's going to graduate and come back as your principal one day. Why do you hate the worst student? Because he's going to graduate and come back and give you a lecture on how to get rich.

A student asked: would the previously number one team be forced to be open and energetic and become number one again on day three? In my experience, what happens is that team one really screws up on day two, then continues to screw up on day three and day four. Why? Because they don't know what they did wrong and they refuse to reflect. We see this in history: an empire, once it rises and falls, never comes back. It never rises again. It's possible that new people come in and use the name of the empire, but it's not the same people anymore. It's a different team. Once you're number one, you become so arrogant that it becomes impossible for you to be humble again. When societies fall, they just die off. It's possible a new group comes and pretends to be them, but they're actually a different people. And that's just the way humans work.

So if we apply this theory to the future, there should be three countries that will emerge as great powers: Germany, Japan, and Israel. Germany, because they lost World War I and World War II and were never a world empire, will one day come to at least dominate Europe and Asia. Japan lost World War II, was never a great empire, so Japan should come to dominate East Asia according to this theory. The Americans dropped two nukes on Japan and destroyed it with firebombing — in fact the firebombing killed more than the nukes did. But Japan was destroyed, it was humiliated, and that forced them to reflect as a people, and now you can see how energetic they are, how open they are, and how cohesive they are. And Israel, because the people of Israel believe that for thousands of years they were persecuted, and that has forged them into a people with extraordinary cohesion and energy. These are three great nations we will be moving toward in history. The Americans are done. China is done.

But a student raised a very good point: after World War II Japan and Germany became very wealthy societies, and the new generation born into wealthy and happy societies has forgotten the war. How can you make sure those societies will continue to be cohesive and developed rather than fall like other rich societies? The answer is: ultimately, power means that you're able to impose your game on other people. You're able to make other people play your game and therefore extract rent from other people. The problem with Japan and Germany is that yes, they became very wealthy, but the game master was America. America decided that their money belonged to America. Something called the Plaza Accords: Japan was becoming too wealthy, America got very annoyed, so America said to Japan: I want you to destroy your economy. I want your people to stop saving money and start spending money. Go overseas and buy whatever you want. In theory it seemed as though Japan got rich, but Japan never had any real power. It could not be a sovereign nation. Power means you're able to impose your will on other people. Same with Germany — yes it became very wealthy, but all that money went where? It went to America. How? Because they were forced to buy US treasury bonds. And then America could do things to you: America could force Japan to sign the Plaza Accords and destroy its own economy, and America could destroy Germany's pipeline, Nord Stream, and there's nothing Germany can do about it. The German economy has been destroyed right now because Germany is a vassal state to America. When Russia invaded Ukraine, America basically said to Germany: you can no longer do business deals with Russia. But before, Germany required Russian oil and energy to fuel its economy. America also said to Germany: you can no longer trade with China. But most of German car exports were going to China. Because Germany was forced out of the China market, China was able to develop its own manufacturing industry.

Another student asked a great question: what decides whether a poor society becomes energetic and cohesive or not? Why did Japan and Germany have that energy but other countries that may also have been defeated in war or are very poor cannot? The obvious answer is a leader. Look at the Mongols before the emergence of Genghis Khan: the Mongols were almost a vassal state, divided and poor, willing to do whatever it took to survive. They became mercenaries to the Song dynasty, mercenaries to other groups. But then Genghis Khan emerged to unify everyone, and once he was able to unify everyone, the Mongols very quickly destroyed everyone else. But leader doesn't necessarily mean a general — it could also mean a poet, or someone like Homer, or a great thinker who gives you a new religion. Someone like Zoroaster, or even Jesus. But it's someone who comes in and says: we are a people. It could be a poet, a general, a prophet, a priest — it doesn't matter. But that one person unifies the imagination of everyone into one cohesive group.

And that's why certain groups are able to cohere together and other groups are not — because one person emerges who is able to merge everyone. And that's why the world is the way it is. Why do we have organizations like the United Nations? Why do we have international development aid? The goal is to identify the possibility of a leader emerging and make sure he does not emerge. If you left Africa alone, Africa would be a lot better. But because you have all these schools, all these NGOs, all these organizations in Africa, what they're really doing is ensuring that Africa is in a continuous state of development — never quite arriving. If you just left them alone, they might starve, but at the same time, a great leader might emerge to unite all of them. We'll talk about this next class: how the American Empire controls the world.