Game theory and the king’s new clothes
I’ll admit to being a bit obsessed with Syriza and the Eurozone at the moment (here and here): it is by some way the most interesting development at the moment in both politics and economics. And I’m also interested in the idea that Yanis Varoufakis’ background teaching game theory might have some bearing on the outcome of the talks with the Eurozone, especially now that he has gone out his way, in the New York Times to say that exactly the opposite is true. It’s worth spending a bit of time on this.
Selfish players
In an op-ed article in the NYT, he spelt this out.
“Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. … The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set.”
As it happens, Bill O’Grady has done a game-theoretical analysis of the Syriza-Eurozone negotiations, and it’s easy to see why the “negotiations” are not going well. This is the pay-off table from Syriza’s side of the desk.
…click on the above link to read the rest of the article…
