D-day for Greece’s chickens

The European headlines today are all about Greece, as they have been for most of the last week. Greek prime minister Alexis Tsipras will shortly meet the leaders of the European Union, the International Monetary Fund and the European Central Bank in Brussels to discuss new proposals that he presented yesterday for an agreement on continued financial assistance to Greece, ahead of an EU summit on the question this evening.

Although the proposals have not been made public, the markets and the media have reacted positively, with hopes that this time – after a generally pessimistic outlook in the last few days – a deal can actually be made.

Meanwhile in Athens, thousands of demonstrators were on the streets last night to show their support for Tsipras and his Syriza party in their tough stand against further austerity measures. No doubt they will be less enthusiastic if they find that he has negotiated away elements that they think are fundamental. But at the moment Tsipras needs both things, however uneasily they fit together: support from the masses for a hard line, to show Brussels that he is serious, as well as some negotiating flexibility to grab a chance if he sees it.

Students of game theory will recognise the whole process as a case of the much-analysed game, “Chicken”. (Those needing to get up to speed should first watch Rebel Without a Cause, then read the relevant Wikipedia article.) It’s probably no coincidence that Greek finance minister Yanis Varoufakis is an expert in game theory, although he has been sidelined in recent rounds of talks because his confrontational style was antagonising Greece’s creditors (which may, of course, have been part of the game).

The distinctive feature of Chicken, unlike the similar and more famous game of “Prisoner’s Dilemma”, is that rational decision-making by both players does not necessarily lead to a sub-optimal outcome. The worst outcome for the two players considered jointly – a crash, or in this case a Greek default – is also the worst outcome for each player individually, so they will try to avoid it. But they will also, so the theory goes, be willing to accept some chance of that outcome as part of a strategy to try to achieve their best result, namely the other side “chickening out”.

Both Chicken and Prisoner’s Dilemma are modeled on the assumption that they are symmetrical: that each player (in this case the Greek government and the creditors) faces essentially the same incentives and the same options. I think that’s a reasonable assessment of the Greek situation. But each also wants to convince the other that there’s an asymmetry; that the other player has more at stake and therefore should be more willing to give in.

Hence the rhetoric from both sides in recent days, stressing the importance of avoiding default but painting the consequences as more serious for the other side. In reality, however, both have a great deal at stake.

I remain of the view, which I expressed following this year’s Greek election, that Syriza is fundamentally not an alien force but that when the chips are down it will play by much the same rules as everyone else. That doesn’t eliminate the risk of failure in today’s talks: even rational well-intentioned actors screw up sometimes. But it seems unlikely; it’s more probable that, even in the absence of a genuine agreement, the leaders will paper over the cracks and have another try later in the week.

To again quote British political scientist Dan Hough, who has studied radical left parties and (I think) got it exactly right:

Left parties, in other words, have behaved in remarkably similar ways to parties of other stripes. Given what we’ve seen elsewhere, this would indicate that Syriza is likely to move more in the direction of the mainstream, taking tough decisions and then struggling with the consequences.  If there is a self-destruct option, Syrzia is very unlikely to take it.