Tobold's Blog
Thursday, June 15, 2017
Predicting the shape of the Brexit with game theory

Next Monday the negotiations between the UK and the rest of Europe about the exact conditions of the Brexit begin. While the very word, the referendum, and the "Brexit means Brexit" slogan suggest that people actually know what Brexit means, in reality there are about a million possible variations of the actual result. We only know that Brexit means the UK not being part of the club any more, but we haven't got the foggiest idea what the future relation between the UK and the EU will be, and by what rules it will be governed. How open will the borders be to the movement of goods and people? What will be the rights of British citizens in Europe, and European citizens in the UK? Which European rules will still apply in the UK in the future? Who is paying how much to whom? Nobody knows at the start of the negotiations.

Frequently one can use game theory to predict the outcome of negotiations. If you have an idea of what the negotiation parties each want, and what their incentives are to stick to some position or be flexible on another, you can make an educated guess predicting at least the likelihood of a range of different outcomes. So what if we apply that game theory to the Brexit negotiations?

If you look at Britain as a whole, you will see that there is a huge range of positions on Brexit. Just under half of the population didn't want a Brexit at all. But a reversal is unlikely because a good number of the remainers is willing to accept the opinion of the majority. But we can assume that the people who voted remain would prefer a "soft" Brexit over a "hard" one. And as the leave side is split on that, one could assume that overall there is a majority in Britain for a soft Brexit.

However to apply game theory one must first study the rules of the game. And it turns out that the rules of this game don't favor compromise. Compromise is something that is achieved when neither side in an argument has the power to push through their position. But in the Brexit game the rules state that if no compromise can be found, Britain simply drops out of the EU in the hardest possible way. The Brexit negotiations are basically about what softer rules, in addition to the default WTO rules, will apply in the future. Which means that in game theory terms a win for the hardest possible Brexit is the default option. The people who want a hard Brexit don't need to persuade anybody, they don't need to negotiate, they simply need to stall and block any negotiations and they win the "game".

Guess what my prediction of the outcome of the Brexit negotiations is!

2 years to negotiate *everything*... I don't think there was ever a plan for that to be successful in the first place. It would have been fairer to have an exit immediately and after that negotiate whatever part of the WTO rules you don't like that much.
The problem is that the will of the monopolists overweight the will of the people and elected officials. It's possible that some London City fat cats, along with the CEOs of Siemens and Peugeot sit down and decide what will happen.
I think Brexit is far too complex for any sort of "game theory" to be able to predict what will happen (so it's basically pointless to bring it up even if it is applicable). It's going to come down to complicated negotiations on so many areas that there is no way to know what will happen on any of them.

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