Can game theory explain the Greek debt crisis?

This article discusses the perspective of applying game theory analysis to the Greek debt crisis for the EU members negotiations. The Greek financial crisis is a debt issue that is plaguing the Greek nation, finance minister Yanis Varoufakis is an expert on game theory. “Game theory is designed to address situations in which the outcome of a person’s decision depends not just on how they choose among several options, but also on the choices made by the people they are interacting with”.  The crisis in Greece is a difficult one for the country and for its debtors, the reasoning for this is that if the EU is in a pickle because their payoffs are unclear if Greece was to default. In the article it discusses the potential payoffs of each entity. If the case was that Greece defaults, there is a randomness to the payoff each entity will get depending on other external variables.

The article discusses two possible outcomes to the strategy of Greece defaulting on their debt and the Euro zone rejecting the 3 point plan deal, if this was the case it would lead to a technical default on the part of Greece and a lot of possible outcomes can be on hand. The payoff is that Greece will get 0 payoffs and EU get 0 another possible outcome is that Greece get 0 and EU gets a payoff of 1. If both entities accept the 3 point plan deal Greece will come out with better payoff than the EU, this should be the Nash equilibrium in this case.

http://www.bbc.com/news/magazine-33254857

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