Why would a strong player relinquish an advantage? Justice or
moral concern for others, perhaps? In his master work, The History
of the Peloponnesian War, Thucydides is unmoved by professed
good intentions, but he does concede that honest conviction and
altruistic behavior do exist—just not in enough measure to oppose
successfully what human nature is earnestly bent on doing. In this
context, the likely catalysts to change the game are emergencies,
tragedies, and social and political crises.
Existing and new players will continue to seek opportunities
to grow, making the industry more complex and expensive.
Complexity artificially worsens the
situation and helps justify spending
on patchy solutions to self-inflicted
problems that no other industrialized country faces. Patchy solutions
generate unintended consequences
and an endless cost spiral. Short
periods of moderation notwithstanding, medical inflation won’t
be controlled and the United States
will continue to lag behind other
industrialized countries in key macroeconomic indicators. Cost
shifting to employees is here to stay.
It is difficult to imagine the political will to tackle the real
problem directly. Change forced by a catastrophe is more likely.
The catastrophe could be war, epidemics, crop failure, flooding,
droughts, depletion of natural resources, pollution, mass migrations, overpopulation, financial meltdown, political crisis—any
of a number of conditions with the potential to force society to
optimize resources and protect its members. A catastrophe could
change the rules of the game and the balance of power. For one
thing, in such a situation the public would be likely to loudly,
perhaps violently, demand social protection, including health care.
A Beautiful Mind
Many concepts of game theory are derived from common-sense
observations about human behavior and framed in theoretical
constructs to facilitate their applications. The serious strategist
never falls in the two traps that have misled economists: the first,
making simplifying assumptions that allow for the mathematical
formulation of problems that do not exist in the real world and
whose “solutions” belong to the realm of fantasy;[ 13] the second,
attempting to make reality fit an absurd theory.[ 14] With these
caveats, it can be asserted that game theory is a tool that helps
understand the game and increases the chances of winning it.
CARLOS FUENTES is president of Axiom Actuarial Consulting.
His professional interests include strategy, entrepreneurship,
and public policy. He can be reached at carlos-fuentes@axiom-
Note: The opinions expressed in this article are the sole responsibility of
the author. They do not express the official views of the American Academy
of Actuaries, nor do they necessarily reflect the opinions of the Academy’s
officers, members, or staff.
[ 1] See “Game Theory, Principal-Agent Problem & Arthur
[ 2] Science 162, pp. 1243-48 (1968)
[ 3] For a description of The Tragedy of the Commons see “In
Defense of Machiavelli,” Contingencies, Nov/Dec 2009, p. 30.
[ 4] There are many cases where price systems exist but individual
freedom is pernicious to society: illegal drugs, prostitution,
gambling, and more.
[ 5] See “Mirror, Mirror on the Wall, 2014 Update: How the US
Health Care System Compares Internationally” published by the
Commonwealth Fund (http://www.
mirror-mirror), “Ranking 37th—
Measuring the Performance of the
US Health Care System” published
by The New England Journal of
Medicine, January 2010 (http://www.
NEJMp0910064), “World Health
Organization Assesses the World’s
Health Care Systems” published by
the World Health Organization, June
2000 ( http://www.who.int/
whr/2000/media_centre/press_release/en/), “Measuring Overall
Health System Performance for 191 Countries” published by the
World Health Organization ( http://www.who.int/healthinfo/
[ 6] According to some researchers, 33 percent of the health care cost
provides no value to patients.
[ 7] http://healthaffairs.org/blog/2015/09/10/medicare-fair-pay-and-
the-ama-the-forgotten-history/. Was socialism the real concern or
lower incomes for doctors, the result of curtailed billing abuses?
[ 8] http://www.bing.com/videos/search?q=reagan+on+
[ 9] See “In Defense of Simplicity,” Contingencies, Sep/Oct 2016
[ 10] See “The Truth About Canadian Health Care” (https://www.
[ 11] “New Study Finds 45,000 Deaths Annually Linked to Lack of
Health Coverage” ( http://news.harvard.edu/gazette/
[ 12] See “Costs of Health care Administration in the United States
and Canada,” The New England Journal of Medicine, August 2013
( http://www.pnhp.org/publications/nejmadmin.pdf ) and “A
Comparison of Hospital Administrative Costs in Eight Nations:
US Exceeds Others by Far,” The Commonwealth Fund, Sep 2014
[ 13] There are many examples. Take the widespread simplifying
assumption of a “representative agent” under which all
individuals make the same decisions, or the decisions of a group
are the same as the decisions of the representative agent.
[ 14] According to Classical Economics, involuntary unemployment
does not exist: unemployment can be only frictional (due to the
short period of time between jobs) or voluntary (when workers
can find jobs but prefer to wait for salaries that meet their
expectations). The conclusion defies common sense.
Words without thoughts
never to heaven go.
—Hamlet, William Shakespeare