World Bank Chief Economist Gives Students Lessons on ‘Game Theory’

Kaushik Basu and GW Professor James Foster help students understand how political and economic leaders behave in order to get what they want.
Game Theory
March 27, 2013

By Julyssa Lopez

To understand “game theory,” George Washington Professor James Foster says, just consider President Richard Nixon: If the president was perceived around the world as overly aggressive, volatile—even a little nuts—it was intentional.

“If you’re Nixon, you’re thinking, ‘How can I achieve greater power? Well, perhaps I can make people believe I’m slightly off-kilter,’” said Dr. Foster, director of the Institute for International Economic Policy at GW. “‘If you do something, I may respond with a crazy response … so be careful what you do.’ ”

This behavior, known as the “madman theory,” shaped much of President Nixon’s foreign policy strategy, and it’s one of several theories on the syllabus of the Elliott School of International Affairs’ inaugural “Introduction to Game Theory and Strategic Thinking” course.

Game theory, as Dr. Foster explains it, is a way of “understanding the strategic options people have and what incentives they have to take those options. It’s a way of predicting final outcomes through introspection, a little empirical work and by analyzing how real people might think.”

Students aren’t just studying subject matter that has historically shaped politics and economics—they’re also learning from an on-the-ground professional. Dr. Foster co-teaches the class with Professor Kaushik Basu, the World Bank’s senior vice president and chief economist.

That’s a “remarkable” benefit for GW students, Dr. Foster said, because it gives them “a  great way of engaging with our neighbors at the World Bank.”

The 160 slots in the class filled up immediately during registration, and on the first day on Jan. 16, it was clear this was a unique course. Filling a corner of the lecture hall was a crew of executives from the World Bank and International Monetary Fund (IMF), invited by Dr. Basu and Dr. Foster.

“There was a really wacky sense in the room that it was a meeting of all the people down the block,” Dr. Foster said. “It was an event—an event shared by people from the World Bank, IMF and GW.”

The connection to the World Bank has given students the chance to interact with the professional world. The second week of class, after a burst water pipe briefly closed the Elliott School, Dr. Foster had an idea. “I called Kaushik’s assistant and said, ‘We’re in trouble. The building is going to be closed and we can’t have class. Is there any way we can use the auditorium at the World Bank?’”

Within an hour and a half, students began filing into the Preston Auditorium in the main World Bank Complex on H Street.

“Students were blown away because we shifted gears and made it happen,” Dr. Foster remembered. “You should have seen them checking in through security, saying, ‘I’ve always wanted to come here!’ It was really exciting.”

Senior Jane Olmstead-Rumsey said the chance to interact with World Bank executives has supplemented both her academic and professional experiences. Ms. Olmstead-Rumsey is consulting with the World Bank’s Independent Evaluation Group, which monitors the outcome of bank loans.

 “As an economics major, game theory seems like a sensible way to model how economic agents interact in the real world. [This course] had greater complexity models than I’d seen in other classes.”

While Dr. Foster wants students to come away from the class better able to strategize, he believes there’s more to gain from game theory.

“These sorts of new ways of thinking about things can help students and force them to frame things differently as they take other classes,” said Dr. Foster. “It’s pretty life-changing, these new ways of viewing reality.”

 

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