Knowing how Greeks and Germans order dinner and how they feel about the EU could help us understand their game theory dilemmas.
Opinion on the EU from a year ago:
So where are we? Although culturally different, Greece and Germany each want to preserve their economic integration.
And that is what game theory is all about. We have two parties who will benefit from a positive outcome from negotiations. BUT…their individual goals differ. Consequently, each has to decide how much to sacrifice for a mutually sought outcome.
Our Bottom Line: The Prisoner’s Dilemma
Categorized as game theory, the prisoner’s dilemma explains how negotiation involves what one party expects the other will offer.
Please imagine for a moment two recently arrested burglars who were separated at the police station. Because each knew what his partner said would affect the response to his own interrogation, each had a dilemma about whether or not to confess. Below you can see that denial could bring the longest jail time if the other person confesses. On the other hand, confessing could be a ticket out the door if the other burglar denies the crime.
Yes, both prisoners want to minimize their jail time and both Greece and Germany want Greece to remain in the euro zone. And like the prisoners, neither Greece nor Germany can be sure of what the other one is willing to sacrifice. Expecting less from one means the other has to give more.
Last week, Greece took advantage of an obscure clause in its loan agreement and delayed payment. As the co-author of Game Theory: a Critical Introduction, their finance chief’s grasp of the prisoner’s dilemma might explain their strategy.
And finally, for some smiles, do enjoy this Monty Python Greek/German philosopher football match.