An interesting piece in the NYTIMES notes:
“Virtually everyone
agrees that a default by Greece is the least desirable outcome for both Greece
and its creditors — among them Germany and France; the European Central Bank;
and the I.M.F. Yet one of Dr. Nash’s critical insights is that there may be
many possible outcomes — so-called Nash equilibriums — that produce suboptimal
results. A Nash equilibrium exists when each side’s strategy is optimal given
what they believe to be the others’ strategy.
For example, if
Germany and other creditors don’t believe Greece’s threat to default, and underestimate
the severity of such an outcome, they might see their optimal strategy as
remaining firm in their demands for Greek fiscal austerity and structural
reforms. If, on the other hand, Germany believes Mr. Varoufakis to be
ideologically motivated to reject further austerity, it might well cave to
Greek demands for leniency.”