Game Theory and Brexit
The decision for the United Kingdom to leave the European Union shocked the world months ago, but the issue is still a center of controversy to this day. This is because the UK hasn’t actually left the EU yet, as both parties are negotiating a deal. This topic is so controversial because the outcome of these Brexit negotiations will undoubtedly affect the entire global economy.
In the article cited above, Abhinay Muthoo applies concepts of Game Theory to the current state of Brexit negotiations in order to predict which “player” is winning. He begins by establishing two main focuses a player in a Game Theory scenario has: enhancing their bargaining power and improving their no-deal payoffs. In particular, Muthoo analyzes the deplorable state of the UK’s current bargaining power. The UK’s bargaining power appears very low because the EU is refusing to even discuss a trade deal until they make progress on discussing a few key issues. These issues that the EU regards highly are EU citizen’s rights, the UK’s settlement of its exit bill, and the border with Northern Ireland. In addition, Muthoo asserts that the UK’s bargaining strength is weakening because the nation itself seems to be heavily divided on the best approach. The UK is threatening a “no-deal” policy because of how weak its bargaining power is right now, yet internal leaks by UK officials and an impending deal deadline of March 2019 reduce the credibility of the UK’s “no-deal” threats.
This article shares a lot of parallels with the topics we cover in lecture. The most obvious connection is Game Theory. Muthoo directly applies concepts of Game Theory to the Brexit negotiations in order to understand the current state of bargaining powers, as well as predict a future outcome. Furthermore, Muthoo indirectly introduces Strategic Interactions in Networks into the situation. The likelihood of the UK and EU coming to a favorable deal depends greatly on the exit options each of the parties have, which is an inherent part of Strategic Interactions in Networks.
Overall, this article highlights a great example of how complex Game Theory can get in a real-life setting. There are so many factors to consider in real-life scenarios. It emphasizes how simplified the examples are that we tackle in class. However, the same concepts that apply to in-class examples evidently also apply to real-life settings.