Can Game Theory be used to help explain the Greek debt crisis?Friday 26 Jun 2015
With a meeting of Eurozone finance ministers taking place tomorrow to discuss reaching a deal over Greece, Professor Marcus Miller looks at whether game theory can help explain the Greek debt crisis.
The Greek government needs a deal with its Eurozone partners to secure to avoid defaulting on its debts, and with Yanis Varoufakis, the Greek finance minister, being an expert in game theory, Professor Miller is questioning whether this could help predict how the Eurozone negotiations will turn out.
In the article, featured on the BBC News website, Professor Miller applies the famous ‘Prisoner's Dilemma’ game to the current situation the Greek Government are facing, and says game theory should apply in situations like this where the outcomes for each player depend on the actions of both.
In his examples, Greece and the Eurozone partners as key players, and various scenarios are applied using a decision tree to account for different outcomes, whilst also taking into account random outside factors.
Professor Miller explains:
The outcomes, known as payoffs, of each player when the game ends are shown in brackets - so (1, 0) would be a good payoff for Greece and a bad one for the Eurozone, whereas (1,1) would be good for both and (0,0) would be bad for everyone.
Faced with the messy prospect of letting Greece slide into default, and the significant risks of chaos that this entails, it looks better for Eurozone partners to avert default and accept the Greek plan, or a watered-down version of it, after all"
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