Contribution discussing the negotiations concerning Greece dept problem using game theory

Abstract

To discuss the negotiation between the creditors (European central bank, IMF International Monetary Fund, Euro Group; without private investors) and Greece (the Greek Government) a game theoretical approach is used. The discussed question is: shall they opt for Grexit (Greece is leaving the euro zone) or for NotGrexit (Greece remains in the euro zone). First we will see that under some circumstances a mixed strategy for Greece is possible (i. e. the player will choose a strategy with some probability) Mixed strategies can help to escape a deadlock situation. That means switching for example from a second best payoff for both to a better payoff for both. But we will see that this possibility is useless. In most cases the payoffs leads for Greece to the option Grexit. Only in one scenario which is close to the Prisoner’s Dilemma the option NotGrexit for both could be possible. But this situation would need a lot of trusting discussions and transparent information about the strategy of each player.