Yesterday, President-Elect Trump responded to Vladimir Putin's response to American sanctions on Russia for espionage with a tweet that read "Great move on delay (by V. Putin) - I always knew he was very smart!". Trump's tweet followed a Russian one, a day earlier, of the word "Lame" over a picture of a duck, also in response to sanctions. In the last couple weeks, the President-Elect has purportedly said "Let it be an arm's race" and otherwise made remarks the flippancy of which has shocked the foreign policy world. "Words," Hillary Clinton, said of Donald Trump's tendency to say outlandish things, "have consequences" and in the chess match of strategic relations where every statement and action historically has been pored over and studied before eliciting the optimal counter-move, his words have been generally condemned.
Game theory predates the 20th Century but came into its own during the Cold War-- advanced by geniuses such as John Nash, Michael Spence and Thomas Schelling who would all go on to win Nobel prizes. Though developed at universities, it was applied by the Pentagon and security community to navigate the threat of nuclear annihilation through one false move. In games with frontiers, each move or statement counted and, in the type of games that became known as signaling games, signaling was never cheap. However, in 1982, two economists Vincent Crawford and Joel Sobel proposed a type of game, "Cheap Talk" in which talk is free.
In contrast to traditional signals--a costly college degree signaling intelligence to employers, for example, in the classic paper by Spence--in games of cheap talk, people can say anything at no cost.
Sending signals or information in the real world had always been expensive. A call on the "red" hotline to Moscow--an idea championed by Schelling before JFK set it up in 1963 was expensive--requiring the resources of government to carry out--though that was far less expensive Schelling realized than an errant plane or bomb. Even in biology, signaling is typically costly--think peacocks and their plumage as a sign of strength. In the age of Twitter, however, information can be translated at minimal cost.
Though Donald Trump is not an economist he is a bargaining savant and it is possible he has stumbled on cheap talk as a useful technique.
When talk is free--or more specifically costless--it means people can literally say anything. They may tell the truth--or they may not. To be credible, however, there must be some chance that the signal is true. So people may include some signal in a sea of noise.
When participants have interests in common, Crawford and Sobel found, they can achieve a better outcome through cheap talk than otherwise. Subsequent work by other economists has confirmed that cheap talk can improve outcomes when two parties to a negotiation have similar interests. However when they have little to gain by cooperating, each will have an incentive to lie that will render the cheap talk increasingly meaningless. The benefits from cheap talk seem to max out when being truthful but also vague.
Currently, the President-Elect's Twitter cheap talk approach and the traditional Cold War approach to strategic relations seem diametrically opposed. In the traditional way of doing things, every move is important, every stray word or posture, kabuki-like in its meaning and the best outcome requires carefully calculating each response. No doubt, that approach grew out of hard lessons--World War II, the Korean War and decades of wrangling with Moscow. A long series of proxy conflicts and outright wars in the Congo, Cuba and Vietnam, testify to the high cost of superpowers signaling military strength.
In contrast, Cheap Talk is largely untested in strategic relations though the Internet has made it increasingly affordable. When interests align, theory suggests it may lead to higher outcomes. Russia and the US have some interests in common--the costs of war and benefits of peace that are always present in strategic relations--and now the desire to defeat Isis.
Whether those interests are adequate to overcome an equally longstanding rivalry, traverse the current rough patch in US-Soviet relations and avert a new Cold War is unknown. However, it would be beneficial for all parties on both sides to grasp that we have entered a new era of virtually free information and cheap talk. In other words, as dangerous as incendiary comments themselves, may be taking those comments literally. Theatrical gestures on both sides should be taken with a large grain of Salt (with apologies for the metaphor) and not treated as strategic moves.