Greece follow-up # 2 – game theory gets interesting

Alexis Tsipras was elected as Greece’s prime minister in January 2015 on the promise to end austerity and reject any deals that would sink Greece deeper into debt. He could not secure a deal that met those terms. He called for a referendum to take place on July 5, 2015 urging the Greek people to reject the “bad deal” that was on the table. They did so strongly, with 61.31% voting to reject.

Unfortunately for Tsipras, the Brussels Group (Greece’s creditors) played hardball by offering an even worse deal than what had been on the table only days before. The offer was more of an ultimatum, with the threat of complete collapse of the Greek economy if Tsipras did not accede. Tsipras folded like a cheap suit.

What’s remarkable is that Tsipras’ approval rating has remained quite strong, hovering around 60%.

This tells me that Greek mentality is no longer one of making the maximally beneficial economic/self-interest decision. Rather, Greeks are taking a position of indignation with an apparent interest in punishing their perceived tormentors rather than simply maximizing their benefit.

When this happens, game theory isn’t predictable. Game theory holds when both parties can be expected to maximize their own situation. The current state of affairs tells me some persons or parties are willing to make self-destructive decisions.

The same mentality could persist both for ongoing Greece negotiations and if other countries across Europe face similar crises. I believe that predicting outcomes just got more challenging. These are indeed interesting times…

 

Sources: What everybody needs to know about the deal to save Greece — and what happens next (The Washington Post); Greece’s agreed-upon plan looks a whole lot like the one it rejected (The Atlantic); Greece’s Tsipras stays popular despite bailout hardship (Associated Press); Greek referendum: full results (The Guardian)

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