UK and European Union would need Reinhard Selten today.

Since Brexit occurred in UK, there has been a major crisis of credibility. Today that process touches another historical point with the fall of the pound (and its partial recovery), but according to several analysts, the worst is possibly yet to come.

But why is there a lack of credibility in the public policies developed by the UK? It is like playing poker or chess, paraphrasing the Nobel Prize in Economics, the German Reinhard Selten.

By the 1950s various economists and mathematicians were working on the same field of study. Game theory was beginning to gain traction within various disciplines. Recognition for this area of the social sciences, particularly within economics, would come with the 1994 Nobel Prize, won by Nash, Selten, Harsányi.

The best known in Nash (perhaps for the movie Beautiful Mind), but the other two winners have contributed a lot to game theory. Personally, I really like Selten's work and its usefulness, rarely used in defining economic policies or company strategies.

In a few words, Selten's work focused on mathematically analyzing the behavior of rational protagonists, their decision strategies and their ways of acting in competitive situations. It could be said that he perfected the Nash equilibrium to analyze the interaction of strategies.

"It's like playing chess," Selten explained to the New York Times when he received the Nobel Prize. “You have to think really hard about what you think your opponent is going to do, and then plan your own strategy based on that. You won't always get it right, but thinking this way will probably improve your game and reduce the number of wrong moves."

Harsanyi established the bases of economic relations with partial information, in situations in which there is no certainty and where the agents do not know the objectives of their competitors, which are situations that are very close to reality. He deals with the problem of incomplete information using a Bayesian approach in which all the uncertainty surrounding the game must be made explicit and quantified. The game of incomplete information is transformed into one of imperfect information.?

It is easy to understand when we talk about credibility of decisions. When a public policy or a business strategy is designed, the first thing we have to analyze is whether it is credible in the dynamic market. That is, if the different agents believe that what is said (or communicated) is viable and at the same time credible to be done.

For example, if they tell me that they are going to reduce my taxes, but they have a significant fiscal deficit, they will most likely have problems in that the agents believe that they will (to lower taxes) is possible and it actually happens, considering the restriction they have (fiscal deficit). Nothing more similar to what is happening with Spain today, and with several European and Latin American countries.

Or when I give a message that I will reduce taxes, and at the same time I will increase public spending to boost the economy. The markets will not believe in this public strategy and will read that the debt will increase, that the more debt the lower its unit price, and therefore many macroeconomics imbalances will be revealed, and expectations will begin to "work". The result, that my domestic currency falls, that my debt is worth little, and is generating my own crisis of confidence. Nothing more similar to what happens with the UK.

This is true for what is happening in Europe in many countries today. In the lack of coordination of the policies of the European Central Bank, and in many decisions of companies in their strategies to face uncertainty.

If you know how the information available from agents works, if you know how to read reality using the approach of the 1994 Nobel Prize winners, it is easy to realize that the worst may yet be to come.