Game theory and the laws of Thailand

The evolution of game theory into a magic bullet of the real economic world

The frivolous word “game theory” is an umbrella term for the science of logical decision-making, not for sports or fun games. It is a set of tools and a language for describing and predicting serious strategic behavior. Having its origins in the modeling of board games, the misleading term has long since become a widely applicable object of research in business studies that analyzes the players, strategies, and payoffs of situations. However, these ideas help as well to generate counterintuitive insights about legal problems and how the legal game is or should be played. In the following, the applicability of the game theory in the legal environment is outlined.

Non-cooperative game theory is about strategic settings (games) with various competitors who influence each other with their decisions and where one’s own decision depends not only on one’s own actions but also on those of others. Legally relevant decisions can be understood as a game with non-cooperative players. The objective is to make decisions not naively or emotionally, but rather in a game theory optimized way.

It is the purpose of game theory to analyze game situations and, on this basis, to give instructions for action and to identify game strategies. Game situations can be markets, competitive situations, but also the legal framework and fiscal regulations. The variables of the game are the level of information, the options for action, and the rationality of the actions of other participants.

A typical conclusion of game theory is the realization that a balance (equilibrium) results from the given situation, which is most useful for all participants (Nash Equilibrium). The strictly dominant strategy in game theory models is a strategy that offers the highest benefit among all possible strategies, regardless of what the other actors (players, agents) do.

Effects on legal structures and decisions – rules of the game and playing with the rules in Thailand

All decisions of the legislator are based on game-theoretic considerations or at least they should be. This applies for example to the sales prohibition for alcoholic beverages between 14.00 and 17.00 hours. Up-to-date more explosive topics are the border locking to the epidemics defense. Game theory can model the consequences that players will draw from this and whether the legal goal will be achieved in the long term.

For a foreign investor, it is of paramount importance to take game theory considerations into account when deciding about the utilization of a nominee. Identification of the game itself is of great importance. How will the Thai landowner behave in the long run if she has been assigned by a foreigner? How will Thai co-shareholders of a Co, Ltd. behave in the normal case, but also in the case of a stress scenario? Before a Thai court, game theory often plays an even greater role than the legal framework. Here the prisoner’s dilemma is shown in many variations.

Participating in a government tender, unfortunately, has multiple Nash equilibria, and the game itself offers no good means for the players to coordinate on those equilibria. As a consequence, if the game were
played in an experimental setting, it would result in an unpleasant outcome. There are various similar situations for a foreign entrepreneur to deal with officers, Thai business partners, and other stakeholders.

PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property acquisitions and developments. The law firm complements its professional services with a holistic discussion of the above-mentioned aspects. This is a considerable added value for the client, which far exceeds the costs of legal advice.

We welcome any opportunity to discuss the relevance of the above matters to your business.

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