Business Case Studies & Business Publications

Boris's Brexit Dilemma (A)

Zorc, Saša;Gregori...

Case

Boris's Brexit Dilemma (A)

Zorc, Saša; Gregorio, Alexander

QA-0956 | Published March 13, 2023 | 3 Pages Case

Collection: Darden School of Business

Product Details

In 2019, several years after a referendum in which British voters chose “Brexit,” meaning the United Kingdom’s (UK’s) exit from the European Union (EU), the transitional agreement between the UK and the EU is due to expire. Prime Minister Boris Johnson must prepare for two facets of Brexit, each of which involves a decision: (1) whether to invest in mitigation funding in case of a hard Brexit (meaning one without a trade deal in place); and (2) how to handle the nonnegotiable trade agreement proposal from the EU. Johnson must decide quickly, with the goal of maximizing the UK’s chances of getting the best possible deal. The class based on the “Boris’s Brexit Dilemma” case set includes a simulation of the negotiation, with students paired up: One student in each pair represents the UK, the other the EU. The case can be taught in significantly different ways depending on the audience: It can be focused on the game theory of the situation (formalizing the concept of subgame-perfect equilibrium and applying it to a realistic setting), the negotiation dynamics (credible threats and how improving one’s outside options strengthens bargaining power), or some hybrid of the two. At the University of Virginia Darden School of Business, this case set is used in the “Games, Competition, and Cooperation” (GCC) elective for MBA students, as well as in several executive education programs. GCC is a business-applications-focused course in game theory, and this case is placed roughly in the middle of the course, after the fundamentals of game theory have been introduced. The case would also be appropriate for MBA or undergraduate classes in either game theory or negotiations.

The case set is designed to give students transferable tools for handling the strategic situations they will face as managers—high-stakes sequential decisions in which their counterparty’s behavior today depends on what their counterparty believes about their own future actions. Concretely, it pursues some or all of the following objectives: (1) Provide a formal introduction to subgame perfection, develop an understanding of why it has become the central solution concept for sequential games, and show why the Nash equilibrium can be inadequate in realistic sequential settings—so that students are able to evaluate any multistage decision by working backward from the endgame and to distinguish promises and threats they should believe from those they should not. (2) Develop an understanding of how core concepts from negotiation theory—best alternative to negotiated agreement (BATNA) and zone of possible agreement (ZOPA)—interact with strategic play, building the habit of asking, before any negotiation, “What can the other side credibly do if we walk away, and how can I shift that?” (3) Explore the role of trust in the negotiation and how it connects with personal accountability (or anonymity) and the game-theoretic notion of cheap talk, preparing students to recognize when verbal commitments will be honored and when they will be reneged upon. (4) As a secondary objective, examine the psychological phenomenon of spite bias and how it affects any interaction structured around an ultimatum, so that students build a more accurate model of how a counterparty will react to a take-it-or-leave-it offer than the standard rational-actor model predicts.