Game Theory in Nepal- Avoiding the Sucker's Bet

When you travel as a tourist or read guide books to any place you travel to the local population is often portrayed in way that people want to believe they are, and not as they truly are. You watch faux cultural dances, observe "traditional"attire that nobody has worn in at least a generation and in much of Asia the western population is presented something akin to a concept of the "noble savage"....though to make it palatable to modern sensitivities the word savage is never used. Still there is often a romanticization of the cultures we observe, an unwillingness to call a spade a spade and often a self conscious form of collective guilt that does not allow us to come out and make statements about another culture due in part to the West's colonial past. I'm going to say something anyway.

Anyone who has spent any time in south Asia knows that business practices here are abysmal. Scamming, bribing, cheating, fraud, etc. are every day occurrences and almost an expected part of any business transaction here. Credit card infiltration is not low in this part of the world because people are unwilling to spend money, it's because no one pays their bills on time, not even the government of Nepal, and there is very little accountability. I always shop at the few fixed price stores when I can because it avoids the hassle of absurdly high prices I get quoted when someone sees the color of my skin, while many merchants are happy to rip off anyone regardless of skin color, they know white people not only have infinite money (clearly) but we also take the suckers bet- we take people at their word.

While many people I've spoken with in Nepal will go on about things being the way they are because it's a poor country and there has been an insurgency these excuses are just that. Nepal's largest obstacle is the populations state of always expecting the person they are interacting with to be a cheat, and thus for everyone to always be looking for the quick buck and not prolonged relationships which net mutual benefits over time. I don't know a single foreigner that has started a business here that didn't at some point get cheated by their Nepali partner (us aside) and ended up dumping them after losing at least a few thousand dollars. Our first lawyer screwed us and then tried to charge super inflated rates, and we dumped him. My point is not that we got cheated and you should feel bad for us, but that the Nepali people in these incidents cheated themselves in the long term.

Sure these people might have made a quick buck by taking the short pay out, but what if they had been fair all along? If our lawyer had been an honest man and charged reasonable rates I'd still be using him, and not only that I'd recommend him to other expats who ask me for visa advice, instead I'm writing this article about him. The businesses that many expats here run are successful and make decent money for Nepal, and instead of being off somewhere scamming someone else (or possibly getting scammed themselves) they could be part of a decent  honest business that makes good money. Aside from robbing someone else in the short term and being a blight on the better part of humanity, they also robbed themselves of future returns and contacts, something that is often much more valuable.

Game theory is something that I first came across while studying biology and its application to social interactions has always interested me. In a game like prisoners dilemma we can see how in a single interaction we can understand why people might defect or cheat. So cheating tourists that you will never interact with again can be seen in this light, although it assumes they don't interact with other people back home that might be future tourists, but that is another topic and more involved than I want to get. When the math changes is when you can expect to interact with the same people over and over again. Let's imagine a game where two people can choose two different options, cheat or cooperate. Now if both people cooperate they get $50 each, if one person cheats and the other person cooperates the cheater gets $100 and the sucker gets nothing, and if they both cheat they give up most of the pot and only come away with $10 each. So what strategy makes the most sense in a game of an indeterminate number of rounds? Like any game the most successful plan depends on what all of those you interact with will do, how successful you are depends on the environment of other strategies. 

In computer tournaments that pitted a number of these strategies against each other one of the most successful was a simple strategy called tit-for-tat. It always opened with a cooperative play, and if the other program cooperated it  continued to do so, in this way racking up large amounts of money for both programs. When ever the opposing program cheated though, it chose to cheat on all future encounters with that program. I think this in generall sums up how we work in the west, we take people at their word and work with them, but if they show themselves to be untrustworthy, we most often discontinue any association with them (unless they're politicians- we love to elect people that have cheated us for years for some reason.) What happens though if a huge portion of the population always opens with a cheat play? Statistically you too should almost always open with a cheat play, to make sure you don't get the suckers pay out.

This unfortunately is the dynamic it seems in Nepal, and it's why many Nepali people see western people trusting and naive, while we find many Nepali business people to be- well less than ideal partners. In the end though always opening with a cheat play assures a short net of gains over the course of any series of games, and that's what life in Nepal is. At some point there needs to be some ways of allowing trust between people, a way to punish fraud further, to make people not so hesitant to open up in trusting cooperative moves, and most of all to drive home the idea that mutual cooperation over the long term is more advantageous than taking one quick pay out. If you have a goose that lays golden eggs you don't slaughter it to get that one egg out of its belly, you let it lay them every week and reap the rewards over the long term. What Nepal could use is a little education in the dynamics of social interaction, and how as a society they are mostly cheating themselves.

Follow Up:
This post has generated some comments with strong feelings, both in part to the nature of the subject matter and what I feel are some misunderstandings in the original intent of the post. Some of the comments can be read below, and some I did not publish as they were not adding to the discussion and calling people names (these responses came from both sides).

So the first thing I want to clarify is that my initial intent in writing this was mostly brought on by my interest in how game theory affects general decision making processes of populations, and how a better understanding of that theory can lead to a change in actions taken to maximize ones long term gains. That is clearly not what most people got out of it, and that's my failure as a writer. Another point that was a mistake on my part is gross generalizations that were not meant in an insulting way, but merely made in a lazy manner so as to not have to go into details about what I consider very obvious. For instance I am not implying in any way that all Nepali people take actions that look for short term gains, but that this strategy is higher than the average across the globe. It would be the same as saying American people are fat. Well clearly not all Americans are fat, and plenty of very fit and athletic people could take offence to this and tell me I'm full of shit by using themselves as an example and they would be correct. That said, statistically American's are fat, our body mass ratio averages much higher than most of the planet, and we clearly have an obesity problem.

Following this train of thought, while people are indeed the same everywhere, certain cultural habits, social expectations, lifestyle choices and government policies concerning food subsidies have created an environment that makes people fatter than average. In the same way I'm simply stating that these same kind of forces have come together to create an environment in Nepal that makes it so that taking short bets it's often perceived as being better than going for the long haul. Some of these factors can be a less than clear or fair legal system, a lack of accountability, and rules and regulations that often force people to work outside the legal system. For instance bribing public officials is commonly accepted as how things work here due to a number of cultural and social influences, while money laundering becomes common because of currency policies that punish people who earn rupees.

 A key point I was trying to make is that when certain strategies become dominant within a population, it has a direct affect on what strategies other people are willing to take- or more importantly which ones are successful. Over time these strategies become ingrained in what people expect, what they are willing to put up with and how things are generally done. Statistically game theory shows that in strategy populations where you can expect people to take the short bet, it's to your advantage to take the same strategy. The problem is that long term this behavior reaps low returns compared to cooperative behavior. While my wording was chosen poorly, my point was simply that having a better understanding this dynamic shows why it's so important to change this dynamic, and why trust is such an important issue in business and financial environments.

Which brings me to the final thing I want to address which was the somehow insinuated idea that I was suggesting that Nepali's need to work with foreigners to make money or progress. This was not something I was saying or even believe. In fact I generally think that most foreign aid is more detrimental than helpful in distorting Nepal's politics and market, but that's another issue. My point was simply that for anyone to invest, foreign or local, there needs to be trust between people. It's not that just foreigners need to be able to trust locals, its that anyone doing business needs to feel that when they make an agreement with people for employment, for a service or a product that they will get what they pay for or are entitled to, or that if they don't get it there is some kind of recourse. Currently Nepal ranked as the most corrupt economy in South Asia, which is quite a spot considering the company they are competing with. This kind of environment makes it hard for people to trust each other, but the cost of not cultivating trusting environments has long term costs that cost the country dearly.