Game theory: talk of a Grexit teaches us to expect the unexpected

The Greek people just voted “no” in their recent referendum on whether to accept bail-out terms that would have meant tougher austerity measures for the domestic economy. At the time of going to press, the consensus is that this move will be interpreted as a no to the euro and it has prompted much speculation that Greece will be forced to leave the eurozone, return to the drachma, create a new currency and/or some combination of the above. Of course, any economic change of this scale is bound to have an impact on the way business is done across European boundaries. But as well as the direct practical implications, a number of key features of the saga provoke wider comparisons.

Firstly, any move that changes the economic stature of a European country to this extent inevitably affects those who trade with it. In addition, there are the knock-on effects – Germany and its domestic banks, for example, hold some 68.2 billion euros of Greek debt that will suddenly become even more of a burden in a post-default environment. Then there are questions of contagion, like: What does the Greek upheaval mean for other economies near the precipice, such as the Iberian nations and even Italy? However, in addition to all this, there are less linear lines of enquiry as well: What does this whole situation say about meta-themes like asymmetricity and uncertainty? And how do these apply to the tyre business?

The background to what is going on in Greece is a great way to begin addressing these complex questions. Most people know that Greek finance minister Yanis Varoufakis was at the centre of the economic stare-out. What fewer people are aware of is that this economics PhD used to be employed by computer games firm Valve, which is known for its Half-Life series of first person shooter games and its Steam online sales community. Writing in a blog post published on the Valve website in 2012, Varoufakis quotes the email from Valve that led to his employment. Basically it reveals Valve took on Varoufakis because the software firm had been “discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments, when it occurred to [them] “this is Germany and Greece”’.

This is significant because Valve’s business has harnessed the power of the Internet and virtual community networks to both create new economic models and test them – not in theory, but in practice. And because this was all taking place online, all the data has been logged, taking the kind of speculative modelling that was a catalyst in the global financial crises out of the equation. Indeed, Valve appointed Varoufakis to help it develop its position in the market based on his theories of what was going on between the eurozone and Greece, theories that by his own admission were tested in the ironically real Steam virtual environment and now are apparently being played out again on our TV screens.

We can draw out two key points from the overall scenario – size isn’t everything and expect the unexpected. Regarding size, whatever happens next for Greece (and there are many on both sides of this disagreement that say things will only get worse in the short and medium terms), the importance of game theory, which allowed a relatively small country to force renegotiation of its terms several times despite not holding any economic chips, must be acknowledged. It isn’t always about who is right or wrong, but also what each party wants to achieve and ultimately who has got the most to lose. And secondly, we should expect the unexpected.

You don’t have to look too far to see examples of both in our industry. While a little different, cases of asymmetry in action include Apollo’s attempted acquisition of Cooper and Chengshan’s even more asymmetrical aspirations of owning Cooper (which ultimately led to the implosion of that deal) is another. Then there’s ChemChina’s purchase of Pirelli. And going back a few years there’s Schaeffler’s purchase of Continental.

The role of the Internet in how we do business adds another dimension of complexity. And it is here that it is even more important to expect the unexpected. Long-established companies that are world-leading in size and technology realise this and so are positioning themselves increasingly overtly along the online frontier – Goodyear’s US online tyre portal and Michelin’s recent purchases of Allopneus and Blackcircles immediately spring to mind.

We all have to concede that whatever happens next is subject to a reasonable degree of uncertainty – both in this specific case and any parabolic appropriations of it. Even the perceived “winners” of these stare-out contests can end up facing unforeseen circumstances – and the immediate resignation of Varoufakis following his “victory” suggests a shift in perception of that result is required. But at least we can now say that such uncertainty constitutes a known unknown and therefore we can expect the unexpected.