We can’t find enough ways to rehash U.S. budget negotiations because there are so many useful lessons. David McAdams, a Duke econ professor whose upcoming book on game theory looks promising, explains why the conservative threat of default weakens their hand:
In game theory, this sort of quandary has a name: “the holdup problem.” Holdup problems arise anytime you need to trust someone else to follow through on a commitment, whether in business, romance or politics. We solve the holdup problem in everyday life quite simply, by treating one another with good will, and that’s how politicians used to get the government’s business done as well. That’s gone now, unfortunately, but there are other solutions.
When a transaction isn’t happening because of a lack of trust, the affected parties can still often reach a deal by tying their own hands, limiting their ability to take advantage of the other side.