The Euro Zone
Over the past several month, the Euro Zone has been facing many issues, mainly Debt. As Greece continued to suffer through the summer, many countries had talks of leaving the Euro Zone including Italy and Ireland. However, if these countries decided to leave vs decided to stay, the downside on the US economy would vary greatly. In this article, we read about how Bank of America, Foreign Exchange analysts used game theory to help predict various outcomes to better be prepared for what happens over seas.
In our course, we have discussed game theory and looking at various outcomes depending on different strategies. The key goal: find Nash Equilibrium or the strategies by both parties that will help both parties the most. One strategy could be for countries such as Germany, who hold most of the assets to pull out of the Euro Zone. This however would not be good for other countries such as Greece and not good for the US. Another option would be Greece and other struggling countries to leave. This too, however would result horribly for Greece and for the US as currencies fluctuate and trade potentially ceases. I personally feel the Nash Equilibrium of this situation would be for all countries currently in the Euro Zone to stay in the Euro Zone so as to not create a ripple effect that could harm other countries.
It will be interesting to see what happens as the economy slowly improves. This was a great example of game theory because it looks at cost/benefit analysis of various situations and strategies. I enjoyed reading this article.
-bmb97