Calculate the mixed strategy equilibria

Reference no: EM133256012

Assignment:

Vladimir Putin wants to annex the country of Georgia. The Baku-Tbilisi-Ceyhan pipeline undermines the oil flow of both Russia and Iran. They went to war once before (2008) and it did not go well for Georgia, where they lost a few provinces and Russia pushed into the country. Georgia is close to joining NATO, which would mean if that Russia attacked Georgia, every NATO nation would declare war on Russia. If Putin is to make a move, now is the time to do it.

Putin also wishes to reunite the nations that broke away and reform the Soviet Union. The US sat out the last conflict between Georgia and Russia; will they do so again? The Russians are on the border of Georgia, threatening to annex the border area in the same way it did the Crimea.

US: They don't want war and prefer a peaceful solution. They are ambivalent of fighting in another foreign conflict, especially in Russia's backyard. However, they would love it if they could flex their might and have the Russians back down.

Russia: The Russians believe that if they flex their might, they can get the US to back down. The worst thing that can happen is to look weak in the eyes of the world. They also feel they need to do something before Georgia joins the NATO.

a. US and Russia each has two options: back down or initiate a war. 1 is considered to be the worst choice. 4 is considered to be the best outcome. Draw up the payoff matrix.

b. Calculate the mixed strategy equilibria. What is the best move for both nations?

c. Do a decision tree with the US being first movers. What equilibria exists and what is the most likely scenario.

d. Repeat c with Russia as the first movers.

Reference no: EM133256012

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