World Class Faculty & Research / May 2, 2017

The U.S., North Korea and Game Theory

Pyongyang, Arirang (Mass Games)SMITH BRAIN TRUST – Amid the ramped-up diplomatic and military pressure on North Korea, there is something else at play, says Charles E. Olson, professor of the practice at the University of Maryland's Robert H. Smith School of Business. It's an exercise in game theory.

Last weekend, as North Korea launched a ballistic missile, U.S. Secretary of State Rex Tillerson was at the United Nations, urging member nations to adopt new sanctions against North Korea for seeking to advance its nuclear ambitions despite repeated admonitions from the UN. And President Donald Trump was turning to Twitter to portray the latest launch – which exploded shortly after takeoff – as a provocation against North Korea's most important ally, China.

"This is a perfect game-theoretic situation," says Olson, who teaches in the logistics, business and public policy department and is director of the Business Honors Program. The central players are the United States, North Korea, China, South Korea, Japan and Russia.

Game theory is a wide-reaching study that can describe and model how human beings will behave, particularly in response to the actions of other human beings. It's a sort of chess-game thinking. And its basis is essentially this: Your interests depend not just on the decisions you make, but also on the decisions that other people make. In game theory, you choose your moves based on how you expect your competitors to respond to your moves.

This particular game has spanned decades. "I'm just about 75 years old," Olson says. "But I remember reading about the battling between the U.S. and China and Korea in the Wausau [Wis.] Daily Herald as a kid when I was walking around, delivering the newspaper on my paper route."

Today, the stakes are higher than ever. North Korea, in addition to stockpiling artillery weapons near the Korean demilitarized zone, has recently been conducting a spate of nuclear tests and missile launches, suggesting that it might be getting nearer to developing a nuclear-tipped missile capable of striking enemies as near as Tokyo or as far as the United States.

"It's not a pleasant thing to try to force the hand of North Korea," Olson says. "But it's going to get more unpleasant as time passes, as the weapons inventory continues to build."

In typical cooperative game theory fashion, Donald Trump has aligned himself with another player – China, which is believed to have significant leverage as Pyongyang's top trading partner. "He's trying to see what he can do with China to up the pressure, add more sanctions, so that North Korea won't be able to continue in its weapons development," Olson says.

If North Korea's relationship with China were to sour, or if Beijing were to stop buying coal and other exports from North Korea, Pyongyang might suddenly have trouble financing its weapons ambitions.

Game theory is as much about anticipating reactions as it is examining players from multiple angles. 

"We supposedly know that China is afraid that if North Korea starts to unravel, then millions of people with all kinds of diseases and so on will seep across the border," Olson says. So, to persuade China to work toward Washington's goals, and against Pyongyang's, the U.S., following game theory, might approach Beijing with an offer that assuages that fear. They might offer to take in any North Korean refugees who cross into China, perhaps as part of a coalition with other partners – Japan and South Korea, for example, and perhaps some others.

"If it were just the U.S. and North Korea, something would probably work out. But you've got China complicating things by saying, 'We wouldn't like the results of the U.S. winning out, because it would be more costly for us, in terms of these refugees.' And that's where Trump could say, 'Well, we'll take that problem away from you.' And Japan could say 'And we'll help take that problem away from you.'"

And if North Korea were to fall apart altogether, Olson says, the next question is: "What happens to North Koreans?" Perhaps it starts a new chapter under new leadership, or even a new system of governing. Or perhaps North Korea is absorbed into South Korea, the way that East Germany was absorbed into West Germany. 

The latter option would pose a significant burden on South Korea. "They'd need some help," Olson says, from the other players to take in the largely impoverished country and its 25 million denizens.

And that's part of the theory. It involves asking, "How can you arrive at a better solution than the one you've got?"

Olson calls Trump "America's first game theoretic president." Trump plays his cards close to the vest; doesn't signal his moves before he makes them. "Trump is always saying, 'I'm not going to tell you what I'm going to do. I'm not going to advance my moves,'" Olson says. "He's saying, in effect, 'You'll know what's happening when it happens.'"



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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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