Game Theory in UK-EU Brexit negotiations
https://theconversation.com/game-theory-offers-a-better-way-forward-in-britains-eu-drama-61226
The above article links applications of game theory to a prominent, ongoing political situation in the world today; Brexit. It reflects on then-PM (Prime Minister) David Cameron’s pledge to call a referendum in 2016 to let British voters decide if their country was to remain in the 28-member strong European Union. In essence, the author applies two arguments from Game Theory to analyse the situation: the idea of “credible threats” and the Hawk-Dove game.
The author briefly mentions the idea of “credible threats” by positing the structure of a game with two players, David Cameron vs. the EU (before the referendum took place). The EU could either make concessions to Mr. Cameron’s demands for laxer regulations or wait the negotiating period out and potentially call his bluff when the referendum would take place. Mr. Cameron was hoping that the impending vote would scare the European negotiators to concede, so that he may use any won concessions to convince the British public to vote “remain”. The EU, however, saw through his threat as they realised his influence over the referendum was waning. Therefore, this instance suggests the importance of time and external factors when making decisions in a game. Most of the games in class have assumed that decisions are simultaneous; here, however, it was worthwhile for the EU to wait out the negotiations to assess the credibility of the other player’s threatened strategy.
Furthermore, the article mentions the “game of chicken”, which, in other terminology, is also regarded as the Hawk-Dove game. Essentially, there are two players (the UK and the EU) and both are at the negotiation table to see who will concede. If neither party concedes, then the result is a “hard Brexit” which is potentially economically devasting to both. If both do concede, then they might benefit marginally. If one concedes and the other doesn’t, then the conceding party “loses” while the other reaps the gains of the concessions. This game results in no dominant strategy for either the UK or EU, as their responses depend on what the other decides. There are two Nash Equilibria, one where the UK concedes, and the EU doesn’t and vice versa. However, in constructing this game we have raised a few important questions; does the 27-state EU act as a single unit? And if it does, then is the outcome of a “hard Brexit” equally damaging to both the EU and the UK?
The answers to both the above questions should logically be no, since the system is complex. However, for the sake of argument, if we assume that the EU acts as a single block, we can construct a hypothetical payoff matrix below under the argument that since the UK is smaller than the EU, its gains and losses are likely to be more amplified from each scenario than for the EU (because it has much more to lose and gain as a single entity than as a bloc of tens of countries):
| UK\EU | Concede | Not Concede |
| Concede | 3, 1 | -2, 3 |
| Not Concede | 5, -1 | -10, -5 |
Here, we still have the same Nash Equilibria: (Concede, Not concede) and (Not concede, Concede). The numbers are arbitrary payoffs and their actual values don’t matter as much as their sizes relative to one another (as laid out by the argument above). Therefore, assuming that the EU is much larger than the UK yields similar results to the simple case where they are equal players. However, we would still like to know which party would prevail. Here the idea of “focal points” might come in handy. Reasons not reflected in the payoff matrix, such as economic GDP and trade, will be influential in these decisions, as well as potential changes in political leadership.
Therefore, the issue of Brexit is deeply intertwined with the concepts of Game Theory. However, the application of rudimentary concepts must be carried out with caution due to the size and complexity of the game. It will be interesting to see which of the Nash equilibria play out, or if the case arises that neither are played out because of the involvement of more complicated factors unbeknownst to us.