FT Alphaville » When strategy is mistaken for stupidity, the curious case of eurozone politicians

At the heart of the crisis is a non-cooperative game taking place between policymakers

(...)

None of these parties want to see a catastrophe scenario for Europe unfold because nobody profits from it. But beyond that there are a range of possible outcomes in which the crisis is resolved in different ways, with the surplus (the gain from avoiding the catastrophe) shared in different ways.

These parties are involved in repeated discussions (games) and we have to look for equilibrium strategies...

The writer postulates that, instead of being the idiots or blinkered ideologues they appear to be, certain players are engaged in reputation-building :
FT Alphaville » (continued)

In particular, it could be beneficial for those representing either side in the game to take actions which look counter-productive in the short run in an attempt to convince the other players in the game that their preferences are more extreme than is actually the case, which in turn may lead the other players to rationally choose a strategy and therefore an equilibrium which favours the player who sought to build a reputation. Were these stratagems being played out in the current crisis it would not be a surprise for market participants to believe that policymakers somehow `didn't get it' or were `behind the curve'.

i.e. brinksmanship leading to a compromise.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

There are too many institutional self interests tied up with preserving some semblance of the current status quo, and sufficient institutional players whose interests require a resolution of the worst of our current problems. It won't be pretty, no one will be playing nice. But I see the EU developing positively despite it all - to the ultimate benefit of a large majority of its citizens.

Call me an irrational optimist. Or perhaps an optimist seeking rationality where there is little or none. But I would be profoundly sad at seeing any EU member forced out, or any significant group being marginalised by the power plays currently in motion. Governments lose power when the lose the support of their people, but tend to be replaced by Governments not all that different. I don't think any German Government could survive having been seen to do serious damage to the EU. Call me an optimist.

Index of Frank's Diaries

You continue to think there's a rational explanation to all this

jim jones' followers all felt drinking his koolaide was a rational thing to do.

that's the power of ideation over reason. garbage in, garbage out.

"It's very hard to see what is kept invisible" Roseanne Barr

Come on, Greece is not Ireland is not Portugal is not Spain is not Italy is not France have cooties. Who's going to want to join an alternative currency union to the DM?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa