Can Game Theory Save Greece from Debt?
In 2014, the current Greek Finance Minister, Yanis Varoufakis, released a 300 page book on game theory. His co-author, Shaun P. Hargreaves Heap, said that financial negotiations employs the principles of game theory. One of these principle is that the people who are the most likely to concede in a negotiation are those who have the most at risk if the negotiation fails. In this case, both the Eurozone and Greece have much at stake, so they both must be optimistic and approach the negotiation cautiously. Heap says that even though game theory will help abate the Greek crisis, it will not solve it. This story is represents a real life application of game theory that goes beyond just games. Game theory is essential for politicians from all countries. If a seasoned game theorist were to run for a political position, he/her would be able to anticipate and prepare for actions that opposing candidates would take.
The BBC article draws a model for what Greece could do in the upcoming negotiations. Greece only has one plan of action, to present a plan to avoid defaulting. What comes next relies on the response of the Eurozone. If the Eurozone accepts the proposal, Greece is happy and the Eurozone is more stable but a bit of Greece debt poorer. However, if the Eurozone declines then Greece will default and leave the Eurozone resulting in the stability of the Eurozone or the collapse of it. Either of these two results can happen so the pay off for this decision is the average of the two outcomes (0 for Greece and 1 for Eurozone). In the end, the best option for Greece and the Eurozone is the acceptance of the proposal. It is seen that Greece has a dominant strategy, albeit Greece only has one decision, rather the Eurozone has the more important decision to make. Game theory has always had a large role in politics and the better a politician is at game theory, the more success they will have in their career.
http://www.bbc.com/news/magazine-33254857