Predicting the result of the Greek Debt Crisis
The current debt crisis in Greece can be modeled with a game. In this game, Greece has the option of offering a plan to the rest of the Eurozone or defaulting. Then the rest of the Eurozone can either accept or reject the plan or do nothing if Greece defaults. Since Greece has zero chance of a good payoff when it doesn’t offer a plan, Greece’s dominant strategy would be to offer a plan to the rest of the Eurozone. Now, the rest of the Eurozone must decide if they want to risk the possibility of a Eurozone collapse or take a loss on holdings of Greek debt. The possibility of a Eurozone collapse is devastating enough that we can predict the rest of the Eurozone would choose to accept the plan Greece will offer.
The game described above is slightly more complex than the 2×2 games covered in class but hold similar universal concepts with some slight variations. One difference is that the options available to one of the players is dependent on the choices of the other. Another is that in game theory, the players typically play the option that can give them the highest potential payoff, but in this game, the players must consider exactly how devastating the worst possible outcome would be before making a decision. In the end, this is the reason why the outcome in this game will likely be better than the outcome of the prisoner’s dilemma where neither consider the worst possible outcome in comparison to the others.
http://www.bbc.com/news/magazine-33254857