Scottish Independence Referendum: Analyzing the result with game theory.
Scottish Independence Referendum happened on September 18th, 2014. The result of the referendum was “no”. 44.7% voted for “yes” and 55.3% voted for “no”. The Scottish independence was an issue as Scotland had both costs and benefits of independence, and England also had both costs and benefits of Scottish independence. This “no” result does not seem random from economic perspective, as far as the materials in class suggest.
Economic benefits of Scottish Independence is simple. Scotland receives the North Sea oil and its land. The economic loss of Scottish independence is not so simple. Scotland has to create its own currency, as EU ruled out Scotland from joining euro. Also, Royal Bank of Scotland and Lloyds, both based in Scotland, have already gone crisis during the 2000s. There is no sign that this crisis will recur, and there is no solid statement from Bank of England that it will help Scottish banks during crisis. Furthermore, Scotland would not be able to maintain its wealthy lifestyle. Independent Scotland would have its Scottish whisky which contributes 3 billion pound; however, Independent Scotland would not be able to attract major industries. Economic loss for United Kingdom (UK) is that UK will lose 32% of land, and it would lose 7.1% of total exports. The economic gain is that UK gross disposable household income per head will increase.
Costs and benefits of Scottish independence can be simplified into a chart, where two players are United Kingdom and Scotland. The chart can be summarized as follows:
Player1 : United Kingdom (horizontal)
Player2: Scotland (vertical)
| “yes” | “no” | |
| “yes” | Land, oil – (currency, unstable bank, no major industry) / GDHI – (land, exports) |
Land, oil – (currency, unstable bank, no major industry) / GDHI – (land, exports) |
| “no” | 0 / 0 | 0 / 0 |
The chart is different from classical chart discussed in class as Scotland voting determines the result. From the chart above, the dominant strategy can be determined if we are able to compare the benefits and losses. For simplicity, consider each factor a 1. Then, the chart can be reconstructed as:
Player1 : United Kingdom (horizontal)
Player2: Scotland (vertical)
| “yes” | “no” | |
| “yes” | -1 / -1 | -1 / -1 |
| “no” | 0 / 0 | 0 / 0 |
This new constructed chart has a dominant strategy where Scotland chooses “no”. This dominant strategy was, in fact, chosen. There are errors with this analysis as weights of benefits and costs can be different. There are other various factors involved in this vote such as politics, however, from economic perspective, the result of Scottish Independence Referendum is not random. This “yes” vote was a way for Scotland to maximize its gain, or minimize its loss.
Sources:
http://www.cityam.com/1406114381/scottish-independence-what-would-happen-uk