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Deal or no Deal

March 18th, 2017

I was planning a post, looking at the Brexit negotiations in terms of game theory (more precisely, bargaining theory), but Frances Coppola has saved me the trouble. One reason for my hesitation was concerns similar to those expressed by Ariel Rubinstein, in a 2013 piece that seems to be having a bit of a revival lately. Still, whether or not game theory helps, I think Coppola has it about right.

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  1. Newtownian
    March 18th, 2017 at 08:18 | #1

    Thanks for the Coppola piece. Very interesting and informative background.

    The Rubinstein piece isnt much use unfortunately as its paywalled.

  2. 2 tanners
    March 18th, 2017 at 09:49 | #2

    If you look at the Australian-EU wine negotiations (where Australia did very nicely), and the 2 level game theory that has been applied in analyses, very few of the factors also apply to a Brexit. WTO ‘most favoured nation’ status is commonly referred to in trade circles as ‘least favoured nation’, because that is its effect. In this case, the EU has a very small level 2 win set, nearly all of which will require major UK concessions, which will highly constrain level 1 negotiations. I think that Coppola is right and the UK negotiators are going to have a hard time of it.

  3. Ikonoclast
    March 19th, 2017 at 07:47 | #3

    Coppola gleefully writes;

    “The game will play out for the UK just as it did for Greece and Cyprus. And if any other governments are thinking of playing chicken with the EU – be warned. You will end up as roadkill.”

    It seems he almost approves of what was done to Greece and Cyprus. It seems he is in favour of the anti-democratic neoliberal project of the EU.

  4. Greg McKenzie
    March 23rd, 2017 at 09:01 | #4

    Great article in today’s AFR about the financial adjustments that will take place, and those that have already begun. The role of the ECB will be a critical factor, if not a determinant. If the ECB gives the British financial sector some leeway then London will remain, in the medium term, the dominant force it is today. This will also be dependent on Chinese capital flows. There is some speculation that Frankfurt, being the home city for the ECB, will take over from London. I think that is as likely as Canberra taking over from Sydney just because the Reserve Bank is domiciled there – simply put, private financial institutions do not want to get too close to central banks on a day to day basis. Not surprisingly, the AFR article suggests that London’s biggest competitor, in the short term, will be New York. This, of course, very much depends on the future relationship between the USA and China. In yet another article, in today’s AFR, there is speculation that China may be the leading bidder for any infrastructure projects in the USA over the next four years. But as my stockbroker friend says, you should always short sell speculation because it is better to go long on certainty. Unfortunately, at the moment, there is not much certainty about Brexit.

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