Brexit and Game Theory: More Complex than You Think
Marked by the passing of the EU Withdrawal Agreement Act in early 2020, Brexit had been long settled as a voting decision. Its complex decision-making process and economic significance, however, has been and will continue sparking interests from scholars. In fact, as early as 2019, after the first referendum, British think tank IEA’s COO Andy Mayer published an article exploring the very subject. In his analysis, he explains the then UK’s possible Brexit strategies and their corresponding tradeoffs with game theory, and demonstrates how Brexit could instantiate various types of pure strategy Nash Equilibrium we have discussed in class.
According to Mayer, the UK-EU deal game seems to be a simple 2-by-2 payoff matrix, in which the pure strategy Nash Equilibrium is at (Deal, Punitive) (Figure 1). This means that both the UK and the EU could not gain any benefits by changing their strategies in that situation. This interpretation of Brexit, however, is naive and oversimplified. In lecture, professors did mention that the Prisoner’s Dilemma had its limitations such as its single-issue nature and arbitrary payoff values. In the real world, however, payoff matrices are often complicated by other socio-political issues, thus making payoff numbers subject to change and uncertainty. For example, Mayer argues that if EU’s punishment to Brexit was to practically remove the border between Northern Ireland and Ireland (referred to as “the Irish Backstop”), UK’s payoff would be infinitely negative (Figure 2). This is because the Backstop could possibly promote Irish unionism and thus the separation of the UK, an incalculable loss for the British unionist government.
Another fascinating matrix by Mayer that reflects both the lecture and the textbook is the Leadership game (Figure 5). This matrix shows the then political game between in-office PM Theresa May and Labour Party i.e. the parliamentary opposition, a vivid real-life demonstration of a dominant strategy. Since the Labour Party’s “Non-cooperation to force election” strategy would also reward them with better payoff, regardless of which card May would play, the Labour Party should always choose this strategy. On the other hand, as Mayer observes, May “has been playing survival”, which is her only sensible option. Also the fact that May had previously survived votes of no confidence would give her an additional reason to “stick to her guns”.
In conclusion Mayer provides a novel approach to understanding the surface of Brexit up to March 2019. I used the word surface, because an international and political issue like Brexit could never be easily translated into a simple payoff matrix. Perhaps learning how to establish a system that includes diverse players, stakeholders, history and even assumptions, and thereby finding Nash Equilibria, should be the next step.
Source:
Mayer, Andy. “Can Game Theory Help to Explain the UK’s Current Brexit Difficulties?” Institute of Economic Affairs, 29 Mar. 2019, iea.org.uk/can-game-theory-help-to-explain-the-uks-current-brexit-difficulties/.