negotiation of Brexit

Proceedings Of The Fourth Middle East Conference On Global Business, Economics, Finance And Social Sciences

(Me16dubai May Conference)

Maneesha, Faculty Of General Sciences. Nishant Vijay, Bits,pilani-dubai Campus, Dubai. Apoorva Singh, Bits,pilani-dubai Campus, Dubai.

To Develop a Game Theory Model Analyzing

the Negotiations between Britain and

European Union

05/03/2023Brexit Negotiation 1

Abstract Analyze the ongoing deliberations between Britain

and European Union and develop a better understanding through the help of a game theory model.

This model will allow us to gain an insight on the strategies available for the parties involved and the payoffs for the same.

Use the analogy of two cars speeding toward each other.

The effect would be more adverse on the economy of Britain than on the other states who are current members of the European Union.

Brexit might only be a delusion and can be another one of the repeated games played by Britain with European Union.


1. Introduction For a very long time there have been

talks of Brexit. Since the very beginning U.K. has had

fractious relationship with the rest of E.U. claiming that it is quite meddlesome.

Developed game theory model to explain the payoffs and the strategies involved in this scenario and use the analogy of two cars moving in opposite directions and closing in fast towards each other, the metaphoric collision of the two cars can be considered as the Brexit.


2. Literature Review The European Coal and Steel

Community (E.E.C.) was an international entity formed in 1951 after the World War II to unify the European countries for a better tomorrow. After various struggles Britain finally joined E.E.C. in 1973. This organization led the way for the formation of European Union (E.U.) in 1993. Currently there are 28 members that form the E.U. and Britain is one of them.


Britain and E.U. have not shared the same ideals: Within the E.U. lies the Eurozone which

consists of 19 members who share the same currency of Euro. Britain is not a part of the Eurozone because of the 1975 referendum for the membership of the nation.

Britain is not in the euro or the Schengen passport-free travel zone.

Britain has a different budget rebate (UK rebate or UK correction).

It also opted out of many justice and home-affairs policies.

…


There are Three reasons for Britain to want Brexit:1)Britain paid

approximately 17.4 billion dollars in 2013 and it believes that the money is spent on Bureaucrats in Brussels rather than utilizing that money to improve the infrastructure for the countries that are in need.


2)During the past few years, there has been an increase in the migration of cheap labor from Soviet bloc countries to the U.K. which leads to job losses for the Brits and an increase in the unemployment rate for the nation.


3)There has been an increase in the amount of people coming to Britain only to claim free benefits like unemployment and healthcare and have negligible contribution to the nation’s economy.


Game Theory????? What is game? Lets us first understand what is a Game??Game, in the mathematical sense, is defined as strategic situation in which There are multiple participants. Is Sudoku a "game" ? No. Is Chess a "game" ? Yes.


Some notable Game Theorists

John Von Neumann– Founder of field-1928

John Nash– Nash equilibrium-1950 John Harsanyi– Incomplete

Information(Bayesian Games)(Bayesian Games)-1966

Roger Myerson– Mechanism Design-1976

Many others: Morgenstern, Selten, Maynard Smith, Aumann…


What is Game Theory? layman’s language: Game Theory is one

way of studying how an individual or a group makes a strategic choice.

Formal Definition: Game Theory is a set of tools and techniques for decisions under uncertainty involving two or more intelligent opponents in which each opponent aspires to optimize his own decision at the expense of the other opponents.

The mathematics of human interactions. Uses mathematical tools, called games,

to study situations that involve both conflict and cooperation.05/03/2023Brexit Negotiation 11

Key Elements of a game

Players: Who is interacting? Strategies: What are their options? Payoffs: What are their incentives? Information: What do they know? Rationality: How do they think- maximize gains and minimize losses-?


Some of the popular Games of Game Theory Prisoner's dilemma Battle of the sexes(BoS) Deadlock Rock, Paper, Scissors Trust game Cake cutting Chicken(aka hawk-dove) Traveler's dilemma …


Chicken Dilemma Game

In the prototypical chicken dilemma, also known as the hawk-dove game or snowdrift game two rebellious teens race towards each other in the car.

Whoever swerves is considered a ‘chicken’ and loses.

If neither turns away a bad crash happens and both loose.


Nash Equilibrium In game theory, the Nash Equilibrium is a

solution concept of a non-cooperative game involving two or more players in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy.

The Nash equilibrium is not usually the most effective strategy; it is only the best one without co-operation.

So when each player within a game follows their best strategy, taking into account the decisions of the others, a Nash equilibrium will occur.


Continue… Two strategies sw. and st. are in Nash

equilibrium when: under assumption agent A plays sw.,

agent B can do no better than play st. under assumption agent B plays st.,

agent A can do no better than play sw. Neither agent has any incentive to

deviate from a Nash equilibrium.


Analysis of Chicken Game Both lose when both swerve. One player wins when one swerves and

other goes straight. If both go straight, both lose(lose more

than what they would have lost when both swerve. Because if both go straight they CRASH).

Chicken Game has 2 Nash Equilibrium: (St, Sw) and (Sw, St).


Two players drive cars toward each other. If one player goes straight that player wins. If both go straight, they both die.


Figure 1: Analogy of 2 cars

St.

Sw.St.

Sw.

A B

Swerve Straight

Swerve 0,0 -1.1Straight 1,-1 -5,-5

Car A

Car B

3. Methodology Research Questions 1)How game theory is related to the Brexit

scenario? 2)Finding an approximate outcome to the

Brexit scenario by using a game theory model.


How game theory is related to the Brexit scenario? The current negotiations can be clearly

analyzed by the concept of “Game of Chicken” which is a crucial element of Game Theory.

Two cars moving in opposite directions and closing in at a very rapid pace towards each other (figure 1).


This metaphoric collision of the two cars is the Brexit which will lead to a drastic effect in the world economy.

It will majorly affect the economy of the 28 nations which are currently a part of the E.U.

From the historical evidences available, we come to know that U.K. has been playing this game repeatedly and has always managed that E.U. defects from its path first (swerve) to avoid a collision.


Limitations of the model The game theory model that we have put forward

for the analysis of the ongoing negotiations between Britain and the European Union is a 2x2 matrix.

We have considered E.U. to be as a unified organization in this case(instead of 1 to 27 independent nations), because of infinite number of strategies and payoffs possible for the multiple parties.

We have considered only two strategies per party. There can be various other strategies that are possible for the multiple parties involved (including the 27 nations that are a part of the E.U.).

Another factor that can influence the negotiations between Britain and European Union is how much time one takes to defect from the path.


Game Theory ModelThe model is a 2x2 matrix that helps determine which strategy will dominate and which strategy will be dominated.

Figure 2: Game Theory Model


E.U.Britain Swerve Straight

Swerve +1,+1 -3,+3

Straight +3,-3 -10,-5

Strategies

Players

Payoffs

when both the parties continue to move in the same direction, this scenario will not be ideal for both the parties in the short run and will be more adverse for Britain as compared to European Union.


Suggested outcomes of Brexit If Brexit takes place; If there is a Free Trade Agreement that is

signed with European Union, GDP for Britain will decrease by 2.2%, If not, then this could lead to a 6.3% to 9.5% decrease in GDP for Britain. This means that Britain loses access to a market that comprises of 500,000,000 people and will have to face tariffs and regulatory barriers to trade. Also, its access to worldwide trade will be compromised.

However, if Brexit takes place, the GDP of Britain could have increased by 1.6% by 2030


Continue… Migration of people is another factor

that would be affected due to Brexit. Free movement of people might be rejected like in the case of Norway. Such restrictions on travelling might lead to losses in public finances for U.K. Apart from this.

We can also assume that there will be a denial of E.U. rules and regulations. The standards and institutions set by E.U. will not be met.

Apart from these consequences, one of the major cultural consequences for Britain would be the loss of interest in the English language and culture.05/03/2023Brexit Negotiation 26

Continue…For the European Union, a Brexit could mean that there will be economic losses for all the member nations: The GDP for Germany will have 0.1% to

0.3% decrease. Other countries that suffer the most are

Belgium, Ireland and Luxembourg. Britain contributes a significant amount

to the budget of E.U, so that the member states would have to contribute more to the E.U. budget, for example Germany would have to pay approximately 2.5 Billion Euros a year extra. 05/03/2023Brexit Negotiation 27

Continue… There will be losses for the member

countries as most of these countries, which relied on U.K.’s trade.

This would lead to a loss of “power” for the E.U within the international politics and would be affected in terms of global trade partnerships.


4. Results and Discussion The only favorable outcome for the two

parties will be if both parties defect from the path. This will be the Nash Equilibrium and will be the most stable outcome.

If in case Brexit takes place, Britain would be the nation that will be most affected and will face severe losses in the short run.


President Donald Tusk Former Prime Minister David Cameron


Reference Maneesha, Nishant Vijay, Apoorva

Singh, May 2016, To Develop a Game Theory Model Analyzing the Negotiations between Britain and European Union.

Revised from: http://www.slideshare.net/1991soumya/game-theory-12530191

Revised from http://www.slideshare.net/PrithvirajRajDasgupt/1-intro-gametheory


http://www.slideshare.net/1991soumya/game-theory-12530191



http://www.slideshare.net/PrithvirajRajDasgupt/1-intro-gametheory



با تشکر از توجه شمااستاد: دکتر خلیفه سلطانی

گردآورنده: آرمنوش آرچونیانی


Date post:	12-Apr-2017
Category:	News & Politics
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negotiation of Brexit

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