In economics how does game theory apply to the financial crisis?

Some have argued that it is a form of multi-person Prisoner's Dilemma.

http://en.wikipedia.org/wiki/Prisoner's_鈥?/a>

If everyone in the financial sector behaves responsibly, then economy stays stable, but if any one person goes after the higher risk activities, then that person makes a killing and everyone else loses (their profits are lower, their stocks go down, they get bought out, etc.). Thus they all have a strong incentive to the sort of irresponsible behavior (high leveraging, etc.) that caused the financial crisis.

http://voices.washingtonpost.com/ezra-kl鈥?/a>



Another element is the behavior within financial firms - executives within these companies played the odds: if they made a risky bet and the company went under, then the most they'd lose is their job; but if the bet paid off, they'd win big. Therefore the odds were in favor of being risky even if it wasn't the right thing to do for the stockholders:

http://www.propublica.org/article/the-su鈥?/a>In economics how does game theory apply to the financial crisis?
The main strategy is to get inside information concerning the exchange rate.Then go for it. The last financial crisis in Asia in 1997 due mainly to the pegged system, had created a big wealth for some who really knew when the central bank had to let the currency out of the hook. Gambling with the central bank, can make the competitors go broke without a saddle point and Nash equilibrium.In economics how does game theory apply to the financial crisis?
Think MONOPOLY, with big banks %26amp; Wall Street making us circle the board till we become slaves and die.