Game Theory Behind the Greek-Euro Negotiations
Links: http://www.bbc.com/news/magazine-33254857
Supplement Link: https://www.washingtonpost.com/blogs/monkey-cage/wp/2015/02/16/why-greeces-finance-minister-denies-that-hes-a-game-theorist/
This article covers the Greece-debt crisis in 2015 from a tactical point of view. Referencing the Greek finance minister Yanis Varoufakis’ knowledge of game theory, it theorizes his thought process behind the bargaining some considered scheming and bluffing. Due to the nature of the situation, the most likely outcome of the negotiations was for a greek-euro agreement to be made. For this reason, there was enough leverage to make attempts to turn Greece’s circumstances slightly better.
Alluding to the Prisoner’s Dilemma, a well-known game theory example, it provides reasoning for Greece’s submission of a fiscal proposal over defaulting. Outing Greece would benefit the eurozone if Greece’s exit did not bring about its collapse. However, since it was a possible response, the broader decision to reject the plan became unfavorable. With estimations of both parties’ payoffs in each scenario, it becomes evident that the best course of action was to proceed with a revision of policy and another bailout. On what conditions does the agreement play out is the unpredictable element. The visualization of predictive strategies could tip the scales and give one party a powerful tool in the bargaining game.
