To this day, I watch with a gaping jaw through the window as an aircraft taxies onto the runway, revs up its jets and takes off from the tarmac. I find it miraculous each time I experience it that a contraption weighing tens of tons is capable of soaring through the air. In theory, I perfectly understand why. I am familiar with the algebra explaining movement and aerodynamics. But experiencing flight is something else.
I have been watching the plot unfold in Greece with similar emotions. As I have explained it before, game theory provide a prediction with respect to the behaviour of the players. On paper, we could nicely deduce that the Greeks will eventually back down and accept the measures, and the EU won’t budge and will refuse to write off the debt. And behold, this is exactly what’s happening.
According to game theory prognosis, however, this cannot possibly go down smoothly. The Greeks, who are in a chicken game situation, must behave as irrationally as they can. The aim of the game is to convince the EU that they will not back down under any circumstances or dodge the head-butt. Because they stand a chance of winning only if their creditors truly and fundamentally believe that they won’t yank the wheel. This is textbook. And behold, the negotiations were anything but seamless; an agreement was reached only in the last minute. And in the meantime, very few probably thought through undauntedly that the Greeks’ bullying and demands are mere bluffs that are necessary protocol for the game.
For a long time, I was certain of this. My logic was based on the fact that, on the Greek side, Varoufakis (since resigned) was pulling the strings. If we want to understand his motivation, we must first learn to think with his head. And he is the master of game theory, has written numerous books on it, and reveres one of game theory’s fathers, the late John Nash. In other words, it is not by chance that events unfolded in a textbook-like fashion: The strategy was created by Varoufakis on the Greek side, presumably in accordance with a theory he professes in one of his books. He understood all along what was happening. He was playing a part. He got the most out of it – which is not a lot, since he was never in a winning position. It was logical in the way he was acting, irrationally, bluffing and trusting in the EU’s usual wussiness and fumbling, hoping that by some divine providence the EU will back down first. (His hope was not unfounded: Some voices were leaning within Europe toward a greater compromise, and numerous world-renowned economists called out Germany’s solidarity and for debt relief; e. g. Stiglitz or Piketty. I am convinced that they are misguided about the situation.)
However, when the referendum was announced, I myself wavered in my opinion (which shows how well played by the Greeks the chicken game was). Game theory or not, we cannot be certain that the Greek government is not simply a dunce, and the battle will end in a disaster. We must always reckon with this possibility – human idiocy knows no bounds. In retrospect, we can see that the referendum and the winning No votes were only another, more assertive bluff in the game. It was intended to make it clear for everyone: The people have spoken – we will not yank the wheel! And then in the last minute, directly before the last cents in the ATM’s disappeared, they were forced to dodge with a huge move.
Varoufakis played his role in his own game theory model perfectly. Nevertheless, he demonstrated the textbook example of what happens when someone tries to adjust reality to fit the model in his head, refusing to recognize that his model does not bear reality. In their case, it was the loss of confidence, tight control, and much tougher measures and consequences than included in previous plans resulted.
The world press is resounding about the capitulation of and victory over the Greeks, but in my opinion, no greater luck could have befallen them. Although it was not their intended outcome, they have been given a chance to become a decent European country. And perhaps many will not agree with me on this: I wish something similar were to happen to Hungary!