Game Theory is a method of analysing calculated circumstances where success is based on the choices of others.

It is the study of mathematical models of conflict and cooperation between intelligent rational decision makers.

The outcomes possible in Game theory range from the absolute victory of one side.

A ZERO SUM GAME (a pistol duel or winner takes all card game).

To a game where success or failure is judged by coalition and mutual benefit.

CO-OP (multi nation political Unions such as Europe).

The Cuban Missile Crisis

In the West post 1945 one event which was a fascinating (and terrifying) example of Game Theory, was the Cuban Missile Crisis of 1962 / 63.

The US stated its intention to site nuclear weapons in Turkey and Russia responded by stating its intention to do the same in Cuba (both being close neighbours to their opponents).

Nuclear weapons are only an offensive if only one side has them. If both sides do, there is no advantage (the equilibrium of mutually assured destruction).

The Cuban Missile Crisis was therefore fundamentally nonsensical in that if one played the scenario to its threatened conclusion i.e. that the US and Russia fired at each other, it really didn’t matter where they fired from. Even if they were fired from Turkey or Cuba this didn’t prevent retaliation. They both had enough weapons which they could deploy to wipe each other out many times over. This being the case why did the world get so close to Armageddon?

What is a win?

If both sides in a scenario lose then why would either side want to participate?

The point illustrated by this particular crisis is that tribes (Countries) ideally want to win outright however they can regard the next best outcome as not solely losing (i.e stopping the other side winning).

So a “lose-lose” is preferable to a “lose-win” outcome (even if this results in mutual destruction).

Why is this relevant

The current Euro drama has within it many of the same ingredients (although it is being played out with economic weapons not physical ones).

The game being played currently in Europe is the incremental establishment of the costs and benefits by the process of negotiation of possible future actions and agreement. i.e. what is gained and what will be lost for each participant.

Each party to the game will keep their own score to measure whether they are ahead or behind based on their own requirements.

This is why most dramas are far less interesting than they initially appear as in reality the outcome is often fairly clear from the outset, ultimately posturing and threats will give way to compromise.

Now there is one big proviso to the success of “co-operative game theory”, namely when “fundamentalism” is present. If a situation arises where fundamentalism of belief (usually but not always religion) is involved, then the rules change. If one side is prepared to lose everything to protect or further a fundamental belief then the calculations of profit and loss are not the same on all sides (this would be illustrated by suicide bombers being prepared to blow themselves up to remove opposition).


So if we look at the Euro situation we plainly have a number of strongly held beliefs in play amongst them German anti-inflation, country concerns about the the loss of financial Sovereignty and the public’s dislike of austerity and the lowering of living standards but game theory suggests compromise will be reached as long as it is in everyone interests to do so (there are no fundamentalist beliefs).

This means that as with the Missile Crisis when push comes to shove and beyond the drama and posturing the situation will be resolved because no one wins if it’s not.

However there is a “Fundamental” belief that could possibly exist. It could be the case that because of the terrible price Germany paid for the Weimar inflation of the 1930’s it will not agree under “any” circumstances to put itself at this risk again.

If this proves to the case then this is a:

“Game Changer”

It is highly unlikely that Germany will ultimately choose to blow up its own economy to defend a fundamental belief; in nearly all games pragmatism and self-interest are the top trumps.

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