Greek Economic Crisis is a Game Theory Issue
The Greek economic crisis has been an extremely important issue in the world economy over the past couple of years. The European Currency and Economy is suffering due to a few countries compiling extreme debts, one of those countries being Greece. Normally a financial crisis would be an economic issue, but with Greece being on the European Currency, they cannot use normal monetary and fiscal policy in order to impact the currency since it is in the European Union using the Euro. This leads to this situation being looked at as a Game Theory situation where there are multiple people trying to create strategies that benefit themselves.
The article talks about this issue as being multiple different examples of game theory including a game of “chicken”, a “diner’s dilemma”, a “prisoner’s dilemma”, and an ultimatum game. In the case of the game of “chicken”, we look at the relationship between Germany and Greece. While the Greeks have been running up huge debts, the Germans have not been spending very much and creating enormous surpluses for themselves. This leads to them having the ability to spend more to help Greece recover. The game of “chicken” idea comes from the fact that both the Greeks and the Germans have a lot to lose by being the first country from not diverting from the paths that they are on. Both countries think that the other country will give into each others’ demands causing there to be a stalemate where neither country changes what they are doing.
The prisoner’s dilemma is also an interesting way to look at the crisis. The two players are Greece and Germany, and they have been unable to cooperate at all. Thus both of the countries are doing what is best for them and causing problems for each other, which would cause the economy of all of Europe to collapse instead of agreeing and possibly having the best possible outcome.
The economic crisis is important to study and try to fix, and through game theory we can see what the dilemmas facing these two countries are. Thankfully nothing catastrophic has occurred yet, but if this keeps up where neither side gives in and both refuse to cooperate, all of Europe’s and the World’s economies could be affected.
Source:
http://articles.marketwatch.com/2012-02-22/commentary/31085578_1_greek-crisis-greece-new-currency/2