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Game Theory Not Always Applicable – Greece’s finance minister.

http://www.washingtonpost.com/blogs/monkey-cage/wp/2015/02/16/why-greeces-finance-minister-denies-that-hes-a-game-theorist/

The Washington Post article listed above discusses the Greek Finance Minister’s past as a professor studying game theory and how this may or may not apply to his handlings with the German government. Yanis Varoufakis, the aforementions Finance Minister, has been criticized as “busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand…”(1). Commentators argue that because Varoufakis has such a academic grasp on the concept of game theory that it would be impossible to think that he doesn’t apply this to his actions, especially when seeking bailout from the EU. However, Varoufakis claims that he is not nearly as plotting and coniving as they claim him to be, arguing that ” The trouble with game theory, as i used to tell my students, is that it takes for tgranted the player’s motives.” (1). The article also quotes nobel Laureate Thomas Schelling who argues that “it can be very rational to seem irrational when you are negotiating with other people”(1), and later references how it can be beneficial for a patient in a mental hospital to threaten to cut their wrists, even though doing so would have a very negative impact on the person threatening it.

This article relates to our class because it talks about game theory, which is obvious, but more importantly it discusses the flaw in Game Theory : the human error. In Game theory we assume that the 2 people will do whatever is in their best interest based strictly off a certain payoff matrix, but as far as we have learned, it fails to account for the mind games that go on in the real world. In the case of the prisoner’s dilemma, it is logical for both participants to plead a certain way, but many times they do not. Game Theory says that there is a certain preferred outcome for them both and a logical choice, but human’s are all too often illogical. The main takeaway, at least for me, is  that game theory is not always a viable way to approach a situation and may result in one of two parties, or both, being highly disadvantaged.

 

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