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Yanis Varoufakis, the Greek Finance minister writes in the Feb 16 NY Times:

Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. Because I spent many years during my previous life as an academic researching game theory, some commentators rushed to presume that as Greece’s new finance minister I was busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand.

Is this a case of a theorist mugged by reality or someone who misunderstands theory? The second. The first sentence quoted proves it because its false. Patently so. Yes, there are split-a-pie models of negotiation but they are not the only models. What about models where the pie changes in size with investments made by the players (i.e. double marginalization)?  Wait, this is precisely the situation that Varoufakis sees himself in:

…….table our proposals for regrowing Greece, explain why these are in Europe’s interest…….

He continues:

`If anything, my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game to be won or lost via bluffs and tactical subterfuge.’

Bluff and subterfuge are not the only arrow in the Game Theorist’s quiver. Commitment is another. Wait! Here is Varoufakis trying to signal commitment:

Faithful to the principle that I have no right to bluff, my answer is: The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff.

Talk is cheap but credible commitments are not. A `weak’ type sometimes has a strong incentive to claim they are committed to this much and no more. Thus, Varoufakis’ claim that he does not bluff rings hollow, because a liar would say as much. Perhaps Varoufakis should dust off his Schelling and bone up on his signaling  as well as war of attrition games. Varoufakis may not bluff, but his negotiating partners think he does. Protestations to the contrary, appeals to justice, Kant and imperatives are simply insufficient.

He closes with this:

One may think that this retreat from game theory is motivated by some radical-left agenda. Not so. The major influence here is Immanuel Kant, the German philosopher who taught us that the rational and the free escape the empire of expediency by doing what is right.

Nobel sentiments, but Kant also reminded us that
“Out of the crooked timber of humanity, no straight thing was ever made.”

My advice to Varoufakis: more Game Theory, less metaphysics.

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