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H. Gintis: Game Theory: Basic Concepts

Game Theorie is the study of strategic decision making. It uses simplified models to explain the strategies actors (or “players&rdquo can choose in a situation (or “game&rdquo and though can give hints on the possible outcomes of a strategic situation. Game theoretical models usually require, that all players act rational and that a lot of information are available about the players and their available strategies. Originally used in economic contexts, game theory can also be used in political issues.

 Currently the conflict in the European Union between the government of Greece and the Troika can be explained as “chicken game”. The chicken game is a hypothetical situation of a test of courage between two car drivers who are heading against each other. If none of them tries to avoid to hit the other, a mortal crash will be the result which is the worst outcome for both of them. If one drives straight, while the other one makes an avoiding manover, the avoider will be a coward, which is still much better than death, and the other driver will be the brave hero. If both try to avoid a crash, both will appear as cowards, which is better than being the only coward and much better than being dead of course.

The current negotiations between Greece and the European Union can be seen as a chicken game. The “grexit” would be the worst outcome for both actors, since an uncontrolled exit of Greece of the euro zone would have unpredictable consequences for Greece and the European Union. Grexit will be the outcome, if both players don´t change their position at all. If one of the actors gave up its negotiating position, it would be embarrassed (the EU in front of its member states and other international actors, the Greece government mainly in front of its voters, who expected a consequent implementation of the election pledges). A compromise between the both actors (For example an extension of the period in which the credits have to get payed back and the implementation of a few social programs to contain the bad humanitarian situation would be equal to both drivers avoiding a crash since Greece and the E.U would give up their position at least partly.
 
According to game theory, the solution of the chicken game is, that both players, if they act rational, have to “mix” their strategies, meaning that there´s not one strategy, which is always dominating the others. Mixing the strategies means, that both players should for example drive straight to 30% and avoid a crash in 70%. The actual probabilities of mixed strategies depend on the pay-outs the model suggests for the several outcomes. To give all the outcomes of a strategic situation accurate pay-offs is an important part of game theory. That´s why its use is more based in economics than in politics, since in economics the traded currency is usually money. But how can you quantify the meaning of the exit of the euro zone, the loose of credibility, good relations to different countries, the strengthening of democracy, the risk to end up in a war, the importance of overtaking the Crimea? And how can u compare this outcomes on a reliable base?

Since the finance minister of Greece is a well-known game theorist, you can be sure, that considerations like that are influencing his actions. Since both players have emphasized a lot of times, that they will not move their positions, the damage of credibility would be very strong for both, the Greece government and the E.U.. The most possible outcome is therefore a compromise, that let both players appear as winners. The only alternative is grexit, which is not impossible at all.

18.2.15 19:11

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