APPLYING GAME THEORY TO BETTER UNDERSTAND WILL OR WILL NOT, DID OR

DID NOT SANCTIONS WORK TO CHANGE NORTH KOREA POLICY

Applying Game Theory to Better Understand Will or Will Not, Did or Did Not Sanctions Work
to Change North Korea Policy
Ara Rosenhsylop
Independent Research GT
May 22, 2018

Advisor: Ryan Manning

Instructor: E. Leila Chawkat
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Abstract

Game theory is the study of players interacting with each other and making decisions.

Game theory can be applied to geopolitical situations to understand why nations make decisions

and can be used to predict future decisions. This reseach focused on modeling the decisions that

the U.S., North Korea, and China make in response to snother nation's decisions. The research

was a collection of meta-analysis and interviews with experts in the field. The research found

that properly implemented sanctions targeting the leadership will eventually work. This

conclusion was backed up by North Korea's recent willingness to come to the negotiating table

over its nuclear weapons program.

Introduction

Game theory is used in several academic fields including economics, social science,

political science, and geopolitics. One of the most tense and threatening geopolitical situations in

the world today is North Korea’s determination to continue its illegal nuclear weapons program.

The current U.S. and U.N. strategy to curb North Korea's nuclear weapons program is to instill

increasingly stringent sanctions on North Korea and to continue joint military exercises between

U.S. and South Korean forces, but these attempts have resulted in inadequate policy change from

Pyongyang. Tension between the U.S. and North Korea dramatically increased throughout 2017

due to increased rhetoric and saber rattling from both governments. The tension between the two

nations subsided in December and early January after peace talks between North and South

Korea resulted in North Korean inclusion in the 2018 Pyeongchang Olympics. “China provides

North Korea with most of its food and energy supplies and accounts for more than 90 percent of

North Korea’s total trade volume” (Eleanor, Albert) causing many experts and the White House
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to believe that China’s influence is the only way to curb North Korea’s nuclear weapons

program.

Game theory is used to model how different agents (players) will interact with each other

in a strategic situation. Historically most sanctions have failed to meet their stated goals, usually

the threat of sanctions are enough to enforce international law. Most of the time the party

targeted with sanctions will either make the desired change in response to a threat of sanctions,

make changes within a couple of years after sanctions are implemented, or never submit to the

demands of the sender country. Occasionally heavy, long term sanctions that last a decade or

more can result in behavioral change from a regime, most notably the agreement between Iran

and the U.S. and its allies to eliminate Iran’s nuclear program in exchange for economic

assistance to rebuild their economy after almost a decade of crippling economic sanctions. Game

theory can be used to model the effectiveness of each possible decision each player can make,

and how well that decision will impact other players. If this model is used, then each country will

have a better understanding of what other countries most effective decisions are, and how best

that player can maximize the payoff and minimize the cost of different strategies.

Review of Literature

A Political Science Guide defines game theory as “an approach to understanding

collective decision-making”. Game theory can also be defined as the “formal study of decision-

making where several players must make choices that potentially affect the interests of the other

players” (Turocy, Theodore L., and Bernhard von Stengel). Game theory essentially is studying

the interactions between two or more players that make rational strategic decisions that impact

the other players. Chiaka Drakes wrote a doctoral research paper about mathematical models and

defined it as a “process starting with the creation of a mathematical framework to describe a real-
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world problem, followed by the solution and refinement of the mathematical problem and a

return to the real-world problem in order to explain or make predictions” (Drakes 194). Game

theory is used to model how rational agents act in the world when they are in a continuous state

of interaction (Farooqui and Niazi), and this is very clear when looking at how nations use

economic sanctions as a tool of statecraft. Ahmadian, Peyman, and Emad Rabiei use game

theory to develop a mathematical model in order to create a more effective strategy for countries

attempting to use long term economic sanctions to achieve policy change in a target country. It is

important in game theory to understand what each players goals and payoffs are.

The first, and most ambiguous player is “China [which] has regarded stability on the

Korean peninsula as its primary interest. Its support for North Korea ensures a buffer between

China and the democratic South, which is home to around twenty-nine thousand U.S. troops and

marines. “While the Chinese certainly would prefer that North Korea not have nuclear weapons,

their greatest fear is regime collapse,” writes Jennifer Lind, a professor at Dartmouth University”

(Eleanor). China’s policy to keep North Korea on life support and at the same time support U.S.

efforts to denuclearize North Korea can seem counterproductive. The U.S. on the other hand has

three primary goals. The first goal is to keep the peace on the Korean peninsula such that “the

United States wants to assure that, whatever happens internally in North Korea, the artillery

Pyongyang has emplaced within range of Seoul is never fired in anger” (Sigal). The second goal

is that “it wants to stop North Korea from acquiring nuclear arms” (Sigal). Third is that “United

States support for Korean reunification is firm, reflecting the strong U.S. interest in seeing a

united Korea that is free, democratic and led by [South Korea]” (Rever). Overall U.S. interests

focus primarily on keeping the peace and reunification. Kim Jong-Un’s belief that nuclear

weapons are essential to his regime’s survival has placed him in direct odds with one of his only
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allies and primary foe. “Recent informal track two level talks with North Korean officials in

Europe suggest that Pyongyang is single-mindedly focused on continuing with its missile and

nuclear-weapons testing programmes” (Nilsson-Wright). North Korea is also in favor of

reunification, but under the North Korean regime rather than a South Korean government. One

way governments attempt to fulfill their goals are with sanctions.

Sanctions are just one area of foreign policy that can be modeled using game theory, and

it is an easy one to look at because there are usually only two players each with a limited number

of strategies. In the past economic sanctions have infrequently resulted in the desired policy

change, but that does not mean there was no benefit from the economic sanctions. Benefits from

economic sanctions include taking the moral high ground, punishing the target nation, changing

the target nation’s policy, or signaling that the sender nation is willing to take action. Two main

reasons why the success rate of economic sanctions is so low is because threats of economic

sanctions are usually enough to keep nations in compliance with international laws, and this is

rarely counted as a successful sanction attempt. The other reason for the low success rate is that

moral high-ground and punishment are not usually considered successes if the target nation does

not make the desired policy change (Lacy and Niou). Most successful sanction attempts happen

within one or two years of implementation due to the target nation underestimating the sanctions

impact or to the target nation not believing that the sender nation would act on their threat of

sanctions. Occasionally long term sanctions can affect desired policy such as when “Iran and six

world powers known as the P5+1 (China, France, Germany, Russia, the United Kingdom, and

the United States) reached a historic nuclear deal on July 14, 2015 that limited Iran's nuclear

program and enhanced monitoring in exchange for relief from nuclear sanctions” (Davenport,

Kelsey). This happened after almost a decade of crippling economic sanctions led many young
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Iranian citizens to protest their government’s policy. Sanctions on North Korea “have exacted a

heavy toll [on] the North Korean economy, experts say their effectiveness has been undermined

by the failure of some countries to enforce them and the willingness of some companies to flout

them” (Council on Foreign Relations). North Korea’s ability to evade sanctions has been a large

factor in the ineffectiveness sanctions have had on curbing the North Korean nuclear program.

The U.S. is trying to solve this issue by “imposing its largest package of sanctions to pressure

North Korea to give up its nuclear and missile programs” (Holland 1). The sanctions not only

target more aspects of the North Korean economy, but also specific Chinese firms that continue

to do business with North Korea. Sanctions are not the only strategy open to the U.S. and a much

more decisive option could be some sort of military action.

The Trump administration has repeatedly brought up the possibility of some sort of

military action focusing on the idea of “A "bloody nose" attack [which] refers to a limited

military strike against the North's nuclear weapons sites that allegedly would not result in large-

scale death and destruction” (Al Jazeera). Many experts agree that military action from either

side will be met with extreme retaliation and expand a small scale action into a major conflict

almost instantly. One expert told Time magazine that “Military options against the North’s

nuclear arsenal suffer from two problems: they might not succeed, and Pyongyang has

devastating retaliatory options” he pointed out that Kim Jong-Un would not sit back and let his

country get bombed. He would respond by hitting targets in the south forcing U.S. forces to also

target North Korean retaliatory capability, and thus widening the war before it begins

(Treverton). Jeffrey Lewis, a scholar at the Middlebury Institute of International Studies at

Monterey, in December wrote a hypothetical scenario for how a possible war with North Korea

could start and the catastrophic damage that would ensue. He discussed how North Korea’s
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missiles could inflict devastating damage to South Korea, Japan, and even the U.S. Most experts

are in overwhelming agreement that a military action will result in widespread death and

destruction. There are alternatives to fighting North Korea one of which is going through China.

China has almost an exclusive relationship with North Korea and represents more than

90% of North Korea’s trade and is essentially North Korea’s only ally. Dr. Victor Cha is a

leading expert on North Korea and was a director for Asian affairs at the National Security

Council. He lays out a three-step plan to pressure China into denuclearizing North Korea, “First,

Washington should make clear to Beijing that it will not re-enter a negotiation as long as China

insists on maintaining at least 80% to 85% of North Korea’s trade. Second, the U.S. should get

China to step up and pay directly for the denuclearization of North Korea… Lastly, China must

clamp down on domestic Chinese entities doing business with North Korea.” (Cha). The U.S. has

started to target foreign firms trading with North Korea by placing “new sanctions on ten

Russian and Chinese firms as well as six individuals that it accuses of aiding North Korea’s

nuclear weapons program, pilling more pressure on the Kim Jong Un regime” (Campbell).

Cooperating with China is another way to facilitate China’s motivation to remove North Korea’s

nuclear weapons program. The most effective “step that would truly demonstrate mutual resolve

against the Kim regime’s pursuit of a nuclear arsenal is for the United States and China [would

be] to cooperatively enforce sanctions against North Korea through a combined maritime

interdiction operation” (Rauch). This would help to reduce North Korea’s ability to illegally

trade at sea with other nations.

Negotiations can also be conducted directly with Kim Jong-Un. In early April “President

Donald Trump said on Monday he planned to meet North Korean leader Kim Jong Un next

month or in early June and hoped the discussions would ultimately lead to an end of the North’s
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nuclear weapons program” (Holland 2). This is an unprecedented move as Kim Jong-Un has not

spoken with any U.S. presidents during his time as leader. A North Korean allied news sources

discussed the potential upcoming meeting, and “The column painted the best outcome in terms of

a “win-win strategy”—not a usual North Korean formulation. The column did not rule out

having denuclearization on the agenda, though it used a tortured construction to make the point,

noting that it would be “extremely foolish” for the President to think that in the talks he could

seek “only” Korea’s denuclearization” (Carlin). A major reason for the lack of negotiation

between the U.S. and North Korea has been the extreme mistrust they have for each other to

uphold deals. In 1994 an agreement was reached between the North Korean government and the

U.S., “the agreement targeted many of the issues that the two sides continue to grapple with – but

it soon ran into problems, and ultimately broke down in 2002” (Ryan). The article discusses how

U.S. failure to uphold parts of the deal and North Korea’s secret development of nuclear

weapons caused the deal to fall apart. This led to deep mistrust from either side to stick to any

further deals that might come from negotiations. A proposal from “China has called on the U.S.

to halt them to start talks with North Korea, part of its “suspension-for-suspension” proposal that

would also require Kim to freeze nuclear and missile tests. The U.S. rejects this outright”

(Tweed). The primary reason for the rejection is that the U.S. does not equate the legal military

exercises it conducts with its allies and North Korea’s illegal nuclear weapons program. The

policy the Obama administration practiced throughout his term in office is known as strategic

patience.

Strategic patience “served as more of a defense of President Barack Obama’s response to

threats rather than offering a new direction and bolsters his belief that acting deliberately now

could stave off worse threats later” (Ratnam). This was coupled with “efforts to cut Pyongyang’s
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access to hard currency and smuggled weapons technology. The sanctions expand the list of

banned arms and dual-use goods, and they require states to inspect all cargo transiting their

territory to or from North Korea by sea, air or land” (Wall Street Journal). U.S. policy was also

updated to “mandate that all ships from North Korea be inspected. Previously, only ships

suspected of carrying sanctioned goods were searched” (Putz). This will ideally reduce the

number of smuggled goods reaching North Korea and increase the effectiveness of already

extreme sanctions. One of the issues with “strategic patience [is that it] tends to support the

status quo rather than encourage change...The U.S. should launch a two-track approach, with one

track focusing on regional security and the other on North Korean issues” (Goodby). Strategic

patience was not supported by effective sanctions, and ultimately made very little progress at

changing anything on the Korean peninsula.

Data Collection

Rationale

The research question: “How can game theory be used to analyze how different players

will react to implementing sanctions?”, and the hypothesis: Game theory can be used to predict

how different players react to different strategies other players use. The data collection

comparing how effective sanctions are according to game theory and how effective sanctions

have been in real world scenarios. The data will be a meta-analysis of various sources that

discuss sanctions in the context of game theory and of real world sanctions. The data collection

involved using sources to answer different questions regarding the effectiveness of sanctions and

other related foreign policy a better idea can be formed about how game theory and foreign

policy experts view sanctions.

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Data

Source: "How to “A Game “Assessing the

Successfully Theoretical “A Theory of Interview
Effectiveness Economic with
Sanction Analysis of of U.S.
North Korea." Economic Sanctions and “Abraham
Sanctions” Issue Linkage: Kim”
Sanction.”
The Roles of
Preferences,
Information,
and Threats”

Do sanctions YES, heavy, NO, YES, they do NO, when the YES, but not
work? targeted, autocratic work to bring two nations very often
enforced, and regimes can the target have reached and not
long lasting shrug off nation to the the point of really when
sanctions will most negotiating implementing dealing with
eventually sanctions table but do sanctions, the North Korea
bring someone and shift the not usually chances of the
to the burden to result in all of sanctions
negotiating the the desired having any
table. population. policy change. effect is low.

Smart YES, specific YES, smart YES,

sanctions or sanctions sanctions are essentially
targeted targeted at the only way all sanctions
sanctions specific to curtail are smart
perpetrators specific sanctions,
and industries behavior. broad
will have an sanctions are
effect. just an
embargo.

Historical NO, most YES, after NO, most

success of instances of years of low instances of
implemented sanctions do sanctions, implemented
sanctions not work South Africa sanctions were
out. was heavily to score
sanctioned, political points
which at home and in
resulted in the
facilitating the international
end of community.
apartheid.

Alternatives NO, Harder YES, More YES, threat of YES, two

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to sanctions sanctions for a cooperation sanctions have ends of the
longer period between been seen to spectrum
of time with a nations, and be much more war, or
greater power a heavier effective than cooperation
to enforce reliance the actual and
decisions. from the implementatio openness.
target nation n of them.
on the
sender
nations
economic
support.

Applicable to YES, the YES, YES, despite NO, the article YES,
North Korea? entire thing is Provides a taking about specifically sanctioning
about the most possible Russia many discusses how North Korea
recent alternative key points nations get to is still
sanctions on to the also apply to the important
North Korea unsuccessfu China and implementatio because it
l sanctions. North Korea n of sanctions, punishes bad
and not where behavior,
to go after and slows
sanctions have the progress
been North Korea
implemented. makes in
technology

Problems NO, the YES, little YES, unclear NO, sanctions

with newest historical objectives lead should be
sanctions sanctions if evidence to to implemented
they are support disorganized to provide
enforced success. and unfocused strength to
properly and attempts to future threats
given time to change of sanctions,
work will behavior. show that the
work. sender is not
bluffing.

Will YES, if you NO, the YES, targeted YES, but only YES, but
sanctions follow the math does sanctions will if the target only as a
work at all? four pillars to not support work on those country tried way to
successful effective things. to call a bluff backup
sanctions it sanctions that was in threats.
will work that changes reality no a
eventually. the targets bluff.
behavior.
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Analysis

The focus of this research was finding various experts views on economic sanctions, and

the reasons they hold these views. The two sources that focused on the math and game theory

aspect of sanctions agreed that historically and mathematically sanctions are not an effective way

of curtailing a regime’s behavior. The two sources produced by foreign policy experts agree that

sanctions do work but are only effective when implemented to impact specific aspects of the

target nation's economy, and when they are implemented harshly and over time to allow the

sanctions to affect the target country's behavior. Dean Lacy and Emerson M. S. Niou explained

why historical examples of failed sanctions significantly outnumber the instances of sanctions

having the intended effect on the target nation. They explained that the threat of sanctions are

very effective at deterring most nations from violating international laws. They also explain that

nations continue meaningless sanctions to score political points at home, to prevent a dangerous

precedent of hostile rogue states from establishing, and to put power behind future threats of

sanctions. The experts in the Wilson Center interview discussed smart sanctions (targeting

specific aspects of the target nation's economy or individuals) and explained how smart sanctions

are able to maximize the effects of the sanctions on the people responsible for behavioral change

and reduce the effect on people unrelated to the issue that would normally be affected under

normal broader sanctions such as an embargo.

The most surprising part about the information gathered is the divide between game

theory experts and foreign policy experts on whether sanctions are an effective tool to curb

unwanted behavior from other countries. One issue that might contribute to the divide is that the

sources focused on game theory were written before the effectiveness of smart sanctions was
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established, such as the sanctions against Iran and Russia that have changed how sanctions are

used by the U.S. The results from the data show that game theory can and is applied to deciding

how nations will respond to international laws, and how the international community will

respond to nations violating these laws. The situation in North Korea is beyond the point of

deciding if sanctions will be used but is perfect for deciding how sanctions will be used. The

article written, detailing the most recent North Korea sanctions is supported by the foreign policy

experts from the Wilson Center that stress the importance of smart sanctions to reduce the

amount of unnecessary collateral damage caused by broad sanctions. A major improvement to

the data collection process would be the addition of more interviews with experts in the field that

are capable of answering specific questions so that the researcher can analyze a more specific

data set.

The ways in which game theory models are used in the decision-making process and

using mathematical models to make optimal policy decisions are invaluable to the people that

make foreign policy decisions. The take away information is that the sanctions on North Korea

are very unlikely to change North Korea’s overall behavior and continued nuclear development,

but smart sanctions targeted at specific aspects of North Korea’s economy, Chinese business, and

closing loopholes could force North Korea to the negotiating table or reduce the amount of

support it has from allies and trade partners.

Conclusions

Negotiations with North Korea have for a long time been nearly impossible. The U.S. has

adamantly maintained that denuclearization is a prerequisite to any negotiations. North Korean

leadership believes that its nuclear weapons are critical to its survival. The only way negotiations
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can happen is if the U.S. lowered the requirements for having negotiations, or North Korea

changes its priorities.

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