The most basic and simple game is that of “chicken” made “famous” by the movie Footloose.
You and someone else line up two cars and drive straight at each other. The first to swerve “loses”. If you swerve first you lose some dignity. If neither of you swerve, you are potentially dead. So the “real” losing situation is neither party swerve.
So there are only 3 outcomes – you swerve first (small loss), they swerve first (gain), neither swerve (big loss).
So what you really want to do is make sure the opponent swerves. The “best” way to do that is to convince them that you cannot swerve.
For example – locking the steering wheel in place, putting a brick on the gas peddle, and then sticking your hands and feet out the window would go a long way to convincing your opponent that you aren’t going to swerve. That should, with a rational opponent, convince them to swerve since you have eliminated the option. The fact that the analogy was regarding U.S. policy in the Middle East at the time and may not have accounted for irrational players, is a separate issue.
So here we are back to Greece.
I have believed that Greece and Germany both ultimately want to come to a deal that buys time (a couple of years). Greece can say they will pay the full amount (just over an incredibly long period of time with low interest rates) and get some relief on the near term austerity while promising to be good in the future.
Something along those lines seems to be a rational outcome.
But Greece probably needs some form of market disruption to get what it wants. How can Germany give in when the market is telling them every single day that not giving in shouldn’t cause a problem.
Greece for its part, has time and time again said they need better terms, and then always, at the last minute, signed up to whatever deal had been on the table all along.
So Greece’s past behavior indicates a deal should be reached almost no matter what. The EU, when it has relented, has typically only done so when the markets have held their feet to the fire, which we aren’t seeing this time around.
*Continue reading at Truman.