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Using game theory to analyse energy and water issues in the face of
climate change.
Background
The development of the future low
carbon energy system is highly
uncertain. This uncertainty stems from
the inherent complexity of the highly
interconnected `global system’, the
interaction of governments and
institutions to address environmental
targets and ultimately the mechanisms
employed in the long-term to deal with
the worst impacts of climate change.
Uncertainty in energy and environment
policy has tended to be studied by the
development of analytical tools and
conceptual models, characterised by the integration of the physical dimension of resources
and energy with an economic dimension, in the form of computer models. These computer
models develop economically optional solutions for forecasting different pathways in order to
provide guidance to policy makers. However, these models fail to consider the social-political
dimension of policy making and strategic behaviour of local and regional policymakers under
complexity and uncertainty.
The role of game theory in developing new insights
In this context, social science based methods, such as game theory can provide insights into
the strategic management of complexity in the energy and environmental domains. Game
theory is the mathematical study of competition and cooperation. It illustrates how strategic
interactions amongst players result in outcomes with respect to the preferences of those
players as well as their possible moves and counter-moves. It can be applied in any field
where more than one actor is involved in the decision making process and the final outcome
depends on the participants strategic behaviour, their willingness to cooperate, risk attitude,
access to information, uncertainty exposure and other behavioural factors.
Game theory can be used to predict or describe how people behave and fulfil their own
interests in the interactive decision-making process. In a typical game, decision makers
(players), with their own goals, try to outsmart one another by anticipating each other’s
decision. The game is resolved as a consequence of the players’ decisions. Solutions found
using game theory for multi-criteria multi-decision maker problems are normally different
from those found through conventional decision or behaviour analysis methods such as multicriteria decision analysis (MCDA) or even agent-based modelling (ABM).
Game theory allows an understanding of behaviour in an interactive environment, providing
planning, policy, and design insights, by:

The modelling of multi-criteria multi-stakeholders problems where conventional research
methods, due to their inherent assumption of perfect cooperation among decision makers,
fail to provide a realistic result. Instead, game theory considers the self-optimizing
behaviour of decision makers and their willingness to cooperate or remain uncooperative.
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For example, the conflict over the Caspian Sea energy and environmental resources
between the incumbent nations after the collapse of the Soviet Union1, or the case of the
California’s Sacramento-San Joaquin Delta conflict over water exports where institutions
developed by the state have been inefficient in implementing a billion dollar optimal
solution2.

Using qualitative information to analyse planning, design, and policy development
problems when quantitative information is not readily available or difficult to estimate. For
example, in case of selecting an implemented practical solution using both qualitative and
quantitative information for the energy supply of the City of Fairbanks, Alaska3.

Analysing bargaining, voting and negotiation situations where the dynamics of sequential
interactions are not fully understood. For example, in the case of climate change
international negotiations under different decision making processes such as fall-back
bargain voting 4,5,6.
The application of game theory to energy and water issues
As we seek to transition to a sustainable low carbon future, energy and water issues have
become increasingly interconnected. In order to address the scale and complexity of these
interactions analysis has focused on the assessment of linkages between resources
themselves, and not enough on the integration of their management into institutional systems
and policy design processes. Therefore Game Theory provides the opportunity to advance a
framework to abstract the interactions of decision-makers by focusing on competing
objectives, lack of consistent quantitative information and non-cooperative behaviours. The
pressing need for these tools is exemplified in the UK government’s development of the
Sustainable Pathways to Low Carbon Energy (SPLICE) project, which aims to provide
“Accessibility and comprehensive information for decision makers ... on the impacts of energy
options to help make decisions about sustainable investment, deployment and mitigation”.
The holding of a workshop on the 12th of May 2015 at Imperial College, 170 Queens Gate, aims
to highlight how game theory tools can facilitate strategic analysis of complex energy and
water problems for policy makers and the private sector. The workshop will seek to develop
UK capacity to better understand these tools and how game theory can assist on the
assessment of impacts of the dynamics of actors, incentives and other variables involved in
energy and water policy design.
For further information or queries regarding the workshop or the application of Game Theory
should be directed at the following:
Kaveh Madani
Lecturer in Environmental Management,
Imperial College London
T: +44 (20) 7594 9346
E: [email protected]
Homepage
WaterSISWEB
Fernando Parra
ESRC Impact Grant Research Associate
Imperial College London
Workshop Organiser
E: [email protected]
.
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Madani, K., Rouhani, O. M., Mirchi, A. & Gholizadeh, S. (2014) A negotiation support system for resolving an
international trans-boundary natural resource conflict.
2 Madani, K. & Lund, J. R. (2012) California's Sacramento-San Joaquin Delta Conflict: From Cooperation to Chicken.
Journal of Water Resources Planning and Management. 138 (2), 90- 99.
3 Read, L., Mokhtari, S., Madani, K., Maimoun, M., and Hanks, C. (2013) A Multi-Participant, Multi-Criteria Analysis
of Energy Supply Sources for Fairbanks, Alaska. World Environmental and Water Resources Congress 2013: pp.
1247-1257. doi: 10.1061/9780784412947.123
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Habla, W. & Winkler, R. (2013) Political influence on non-cooperative international climate policy. Journal of
Environmental Economics and Management. 66 (2), 219-234
5 Finus, M., Kotsogiannis, C. & McCorriston, S. (2013) International coordination on climate policies. Journal of
Environmental Economics and Management. 66 (2), 159-165
6 Madani, K. (2013) Modeling international climate change negotiations more responsibly: Can highly simplified
game theory models provide reliable policy insights? Ecological Economics. 90, 68-76.
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