Greece: Is it all in the game theory?

Game theory has been described (in Viotti and Kauppi’s “International Relations Theory”) as “a decision-making approach based on the assumption of actor rationality in a situation of competition.”

Greek Finance Minister Yanis Varoufakis is an expert on game theory - he has studied it, taught it at universities, and written extensively about it. (He's probably also got a T-shirt with “game theory” emblazoned on it.)

Therefore it’s been no surprise to see a plethora of articles in recent weeks and months questioning the part that game theory has played in Greece’s dealings with the Troika.

The latest was a piece by economics professor Marcus Miller, in an article entitled, “Can game theory explain the Greek debt crisis?” for the BBC website last week.

Meanwhile, in the Rupert Murdoch-owned Times, a publication hostile to Greece’s Syriza government, Philip Aldrick wrote a piece entitled, “Game theory has not been a winning strategy for Greece,” suggesting that Vardoulakis “should update his textbook ‘Game theory: A critical introduction’” with a “practical epilogue entitled, ‘It didn’t work.’”

Varoufakis himself has denied that he‘s been playing games.

“Nothing could be further from the truth,” he wrote in a New York Times Op-Ed in February.

“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. The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives.”

The idea that Varoufakis has been using game theory has also been rubbished by economist James K. Galbraith, who has been working with Varoufakis for the past four years: “Because Finance Minister Varoufakis knows the economic field of game theory, lazy pundits have for months opined that he is playing “chicken” or “poker” or some other game. …there are no hidden cards….the points of principle on which this government refuses to budge – have been in plain view from day one.”

How convincing though are the arguments that game theory does not apply to the negotiations between Greece and the Troika?

Paul Viotti and Mark Kauppi tell us:

“Each actor tries to maximise gains or minimize losses often under conditions of uncertainty and incomplete information, which requires each actor to rank order preferences, estimate probabilities and try to discern what the other actor is going to do.”

Syriza was elected on a program of bringing an end to austerity - but it is also committed to Greece staying into the Euro. While this position can be defended on the grounds that it is in line with majority public opinion in Greece (around 75 percent of Greeks want to stay in the Euro) - when it comes to negotiations with the Troika, Syriza’s pro-Euro stance has arguably been its “Achilles Heel.”

Whether or not we’ve studied game theory or read books about it, we all know from our personal experiences that the best deals we pull off in life are the ones when the person we are negotiating with honestly believes that if we don’t like what’s on offer, we’ll walk away from it and go somewhere else.

If you’re negotiating to buy a house, for instance, it’s a bad idea to let the seller know you’re really keen on it, as you won’t get the best price.

My wife and I were once pursued down the road in Luxor, Egypt, by a man trying to sell us a sculpture of an Egyptian cat. As we walked down the street, the price kept dropping. We weren’t particularly interested as we‘d already bought enough presents. When we reached the end of the road, about five minutes later, the man sold it to us for a significantly lower price. We didn’t really care if we didn’t get the cat, so we got a better deal than if we had. If you really want something badly, then never show the seller that you do – that’s not “game theory,” just plain common sense.

Taking this into consideration, Syriza’s best tactic surely would have been to convince the Troika - even if it wasn't true - that their commitment to ending austerity was greater than their desire to stay in the Eurozone and that they would rather default on their debts and exit the Euro (and forge new economic ties with Russia and China) than impose any more significant cuts.

The fact that Syriza has been so keen - and has been seen to be so keen - for Greece to stay in the Eurozone has played into the hands of their creditors. The old adage tells us that beggars can’t be choosers, but Greece did have a trump card - which it decided not to play. Make no mistake, Grexit would have been - and would still be - a huge blow to the EU elite and indeed to the US, which wants Greece to stay locked into Euro-Atlantic structures and is terrified of the country moving closer to Russia.

So why didn’t Syriza fully exploit these fears to change the situation to its advantage? Instead, Varoufakis actually said the Greek government would consider an injunction at the European Court of Justice if attempts were made to expel Greece from the Euro.

Perhaps there’s something the Greek government could have learnt from Hernan Cortes, the Spanish Conquistador, and the scuttling of his fleet in Mexico - which is cited as a classic example of how to outwit what appears to be an overwhelmingly superior force in game theory texts. After Cortes landed in Mexico, with his men heavily outnumbered by the native Aztecs, he proceeded to destroy all but one of his ships, meaning there could be no question of retreat.

This display of extreme confidence had a demoralizing effect on the Aztecs, who retreated. Game, set and match to Cortes.

So far, all the major concessions have come from Greece, when they really should have been coming from the Troika. It’s the Troika who have been playing hardball, not Greece - leading some to argue that what the Troika really wants is “regime change” in Athens.

Syriza’s position on the Euro has undoubtedly weakened its hand at the negotiating table, but there is another, more charitable theory doing the rounds - namely that Syriza know that Grexit is inevitable, but want it to be blamed on the EU elite and their intransigence, and not on them.

“We wanted to end austerity and stay in the Euro, but the elite didn't allow it, so here we are,” Tsipras can they say to his people, as he brings back the drachma and signs economic deals with Russia and China. If he had done that prematurely, so the argument goes, he would have received much less public support for the moves, especially bearing in mind the hostility to Syriza of much of Greece’s privately owned media.

There is, it must be said, an element of the Cortes strategy in this weekend’s referendum on the Troika’s terms. It’s very high-risk - Varoufakis has said he will resign if there’s a “Yes” vote, but it’s probably the best Syriza could do at the present time, considering the enormous pressure they are under - not just from the Troika but from the elite in Greece who hate everything they stand for.

Sometimes these direct, high-risk appeals to the people to “back us, or sack us” go well - Austria’s brilliant Socialist Chancellor of the 1970s and 80s, Bruno Kreisky, won three clear election majorities when he made it clear he wasn’t interested in going into coalitions, and Charles de Gaulle quelled discontent in France in 1968 by calling elections in which Gaullists recorded a stunning victory.

Other times though, they backfire. British Prime Minister Edward Heath - whose government had faced a bitter industrial dispute with the miners, called an early election in February 1974, asking the question “Who Governs Britain?” Heath lost power, albeit in a photo finish.

Only time will tell if Syriza have indeed played their cards right. A “Yes” vote in the referendum will probably mean curtains for Tsipras and his left-wing government, and its replacement, after an election,with a new “technocratic” administration of neoliberal stooges which will do exactly what the Troika demands. The West’s political and financial elite will be popping champagne corks in New York, London and Berlin, but it will be a major blow to the anti-austerity, pro-Euro left - if Syriza failed, is it likely that Spain’s Podemos or other such groups will fare any better?

A “No” vote, though, would be a significant success for Syriza, even though in practical terms it would be largely symbolic. Greece would be likely to agree to most of the Troika’s demands - but at least some kind of resistance would have been put up. If Greece defies Europe’s elite and most of the privately-owned Greek media on Sunday (and anyone who doesn’t like bullying will hope that they do), then Syriza’s position would undoubtedly be strengthened.

If that does happen, then perhaps Varoufakis will surprise us all and reveal that he’s been using game theory all the time. And saying he wasn’t? It was all part of the grand strategy.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.