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Game Theory in Brexit Negotiations: The No-Deal Scenario

Game Theory in Brexit Negotiations

2016 and 2017 were two years full of political and economic shakeups. From unexpected candidates winning massive elections, to tensions reaching new heights, the United Kingdom European Union membership referendum, colloquially known as Brexit was no exception. As with many other decisions, large or small, Brexit legislators will need to carefully consider their next options and even consider their issues from a Game Theory lens according to Professor of Economics at University of Warwick, Abhinay Muth, and Chief Strategy Office for the Warwick policy Lab Siobhan Benita. In their article, “Game theory experts: credibility is key for a successful ‘no deal’ Brexit strategy,” they highlight how Brexit’s current strategies will lead to worse outcomes in the long run.

One of the most prominent principles of Game Theory is that a player will “take action in two main areas to try and secure the best deal for themselves – enhancing their “bargaining power” and improving their “no-deal payoffs.” Essentially, they want the most rewarding outside options an have more power in the negotiations in relation to their opponent.

In this situation, Player A is the UK who has thus far, despite considerable fronts held by cabinet members, remained relatively weak in the negotiations. According to the article, the best present and in some perspective the only strategy left is for Prime Minister Theresa May to turn her negotiating team’s efforts towards outside options and prepare for the UK to walk away without a trade deal with the EU.

However, things are not as simply done as said. As the article outlines, a “no deal is a good deal” strategy requires careful execution and the current status of this strategy is grossly misunderstood. Two common misconceptions are that “the greater the UK’s no-deal payoffs (its outside options) appear to be, the more likely the EU will be to offer a good deal, and… the UK is more likely to walk away without a deal if it takes actions to improve the payoffs it gets from no deal.” Both of the misconceptions ignore two essential and related factors. First of all, the no-deal payoff has to be significantly better than any of the deals the EU, as the “opponent” is prepared to offer. Additionally, the threat to leave the negotiation table without a deal needs to be credible. In the status quo, neither of these conditions are met.

The next steps for the UK negotiating team as outlined by the authors would be to begin commiting significant resources to the potential of a no-deal scenario. Rationally, once the likely payoffs to the UK of a no-deal become greater than the payoffs of any deal with the EU, “the EU would … offer a deal that matches the payoffs to the UK in a no deal world. A deal might then be struck.”

As the authors conclude, the biggest challenge for Brexit negotiators will be establishing the credibility of this “no-deal” play while racing against the clock to March 2019. In so far as government members continue to say such an outcome is “unthinkable,” international trade deals continue to falter, and contingency plans are rejected by the Chancellor, the UK has a long road ahead of them as they “struggle to control these external factors which undermine the credibility of the threat to walk away from negotiations without a deal.”

Source: Game theory experts: credibility is key for a successful ‘no deal’ Brexit strategy


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