United states and russia are considering policies to open

Reference no: EM13563158

United States and Russia are considering policies to open or close their import markets. Suppose the payoff matrix has payoffs of x,y, where X is the payoff to the US and Y the payoff to Russia

Russia
Open Close
Open 10,10 5,5
US
Close -100,5 1,1

Assume that each country knows the payoff matrix and believes that the other country will act only in its own interest. Does either country have a dominant strategy? what will be the equilibrium policies if each country acts rationally to maximize its own welfare?

Now assume that Russia is not certain that US will behave rationally. In particular, Russia is concerned that US' Politicians may want to penalize Russia even if that does not maximize the US welfare. How might this affect Russia's choice of strategy? How might this change the equilibrium outcome? Would that be a Nash Equilibrium? Why or why not?

Reference no: EM13563158

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