Yanis Varoufakis’ Game Theory
The highlight of international news for Summer 2015 appears to be the tragic story of Greece’s collapsing economy. While the country finally appears to have sealed a deal with Europe for now, there is no concrete way to predict what the decisions of the summer hold for Greece or the Eurozone in the future. Moreover, the entire turmoil surrounding the debate and decisions that finally culminated in Greece accepting Europe’s bailout deal and austerity measures can in fact be explained in terms of game theory. More specifically, the Greek Finance Minister, Yanis Varoufakis’ game theory. Game theory can be used to analyze a situation very thoroughly, however it cannot guarantee a particular outcome, similar to the Greek situation.
Yanis is a well-known game theorist and an admirer of Nobel-prize-winning game theorist John F. Nash Jr. The BBC article that is linked to in this post holds the same view and tries to illustrate in terms of the famous Prisoners’ Dilemma how game theory might explain the Greek Debt crisis. Game theory perfectly applies to situations like these, where the final outcome of the situation for either party is influenced by both parties’ decisions as well as unprecendented random changes. It is no surprise that Yanis used his game theory knowledge and skills to analyze the various outcomes of the situation using probabilities and statistics to make a decision that would hurt the Greek economy the least. Whether such an outcome was ever possible is another question, but it was a good approach.
As the article explains very well, Yanis might have constructed a tree of various possible outcomes and how badly they would affect the EU versus Greece. He could then have easily weighed the pros and cons of accepting the bailout deal and reforms versus a Grexit/Eurozone collapse, all while taking into account external factors and keeping in mind the repercussions of his decision on the Eurozone as well as Greece. The tree constructed in the article clearly indicates that for both Greece and the Eurozone, a default by Greece would cause severe economic issues and should be avoided at all costs. The best deal for both would be to accept Greece’s 3-point-plan.
In the end, Greece was forced to accept the austerity measures and the bailout deal, however, the Eurozone has agreed to easing the terms with longer grace periods, so in a way, Yanis’ game theory strategies appeared to have somewhat worked. And even if it didn’t, it is still pretty fascinating to imagine we can represent the entire Greek economic fiasco as a simple game of decision-making.
http://www.bbc.com/news/magazine-33254857