One constant in life outside of death and taxes (and as the saying goes, they're just for the little people) is negotiation. From the time you get up in the morning and try to get the bathroom when others want it, through going to work or school or both, and then out for some recreational time, you negotiate constantly. Maybe you're trying to gain access to the bathroom, navigate through traffic or mass transit, manage demands and expectations, or cooperate with friends or fellow participants, volunteers, or what have you. It's all negotiation.

That's exactly what's been happening between the EU and Greece, only instead of a set of ordinary negotiations, the two sides are locked in a game of Chicken. You probably know the game, with two drivers heading toward each other on a narrow road. The first to swerve is the cowardly chicken. If both turn away, there is a draw. And if neither gives way, the result is a head-on collision.

Both have been barreling head one toward one another, refusing to back down, insisting on what each wanted. However, the referendum yesterday in Greece was the equivalent of one driver welding the steering wheel so it cannot turn. The Greek public gave a resounding no to Europe's demand for more austerity as part of a rescue package. Now the EU has to decide whether to reopen negotiations or hold fast and let Greece face economic and operational collapse, without enough money to pay salaries, keep important facilities open, or pay for imports the country needs.

One of the biggest problems with economics and negotiation theory is how much they can depend on the assumption of rational actors. People will choose the best outcomes for themselves, so many, but not all, experts say. The assumption came about in economics because some, particularly the so-called Chicago School, wanted to apply various areas of mathematics for neat solutions.

Unfortunately, people are largely driven by emotion and seldom make decisions that seem rational. The reason is that while economists can compare gains and losses expressed in monetary terms, they have a much harder time understanding and comparing emotional values. Being human is a messy business.

In the case of Greece and the EU, both sides have some heavy emotional baggage. Even though Greeks are ultimately at fault for the problems the country fell into, when Europe offered help, it did so with strings, demanding such austerity that, according to Nobel Prize-winning economist Joseph Stiglitz, "the contraction in government spending has been predictably devastating: 25% unemployment, a 22% fall in GDP since 2009, and a 35% increase in the debt-to-GDP ratio." This was like a modern Treaty of Versailles, the negotiated end of World War I that drove Germany into hyperinflation and economic collapse and paved the way for Nazi control and World War II.

Why did the Greeks vote heavily against the EU's proposal, even given the potential problems that could arise? Probably because people thought that the EU might give way, with a collapse meaning European bankers would never see loans repaid, and because they figured they couldn't lose any more than they already had.

On Europe's side there is an entirely different set of emotional factors. The EU is afraid to give in, as that might be like negotiating with kidnappers for victims. Should Greece get away with its gambit, other member countries might do the same. And yet, the combination of fear of loss and the hope of reclaiming some of those billions sent over, and made available by politically-connected corporations, might make them more pliable.

Both sides are driven by what seems to be rational strategy in concert with emotional drivers that the other probably doesn't completely understand or appreciate. And that is the danger, because neither side in the negotiation can then accurately gauge the value of the emotional imperative of the other. Perhaps the EU will let Greece crash, hoping to scare individuals into compliance. The situation is a reminder that no matter how much you've calculated the rational pros and cons of another, you can be taken for a rude surprise if you forget that we are all capable of being hysterical hand-wringers who will cut off our nose to spite our face.

Published on: Jul 6, 2015
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