Game Theory in a Post-Brexit World
Last June, the United Kingdom shocked the world by voting to leave the EU. This event, called “Brexit”, has introduced a lot of uncertainty in not only the European continent but also the whole world. The vote was close, but ultimately the leave party one 52- 48. The vote to leave the EU has been seen as a wider trend of rising trend of nationalism all over the western world, especially the U.S, with things like immigration and trade agreements as hot issues.
However, many politicians show the Brexit referendum as a political bargaining tool, and tried to leverage the possibility of leaving to get better concession the the EU leadership. It should be noted that a lot of them didn’t actually want to leave the EU, as the instability would negatively hurt businesses. This leads to a hawk-dove game between the UK politicians and the EU leadership, where if they both back off, thing return to a non-optimal but stable status quo, but if they are both are stubborn, things will turn out badly for both sides. It is the quintessential game of chicken, and as we studied in class the Nash Equilibrium should either be one side backing down. However neither did, which is probably why Brexit was so shocking. This is an example of how game theory is not a perfect predictor of human behavior. In class, we assumed that all sides are rational, but obviously emotions and uncertainty come into play.
Link: http://theconversation.com/game-theory-offers-a-better-way-forward-in-britains-eu-drama-61226