Question

Nation 2 (response) Conventional Nuclear -10, -10 10,-10 Posture Nation Posture 0, 0 (first move) Attack 1,-1 Nation 1 is slightly ahead in the arms race and will make the first move in the game. A. B. Depict this game in its extensive form using a game tree. Is there a sub-game perfect Nash Equilibrium in this game? The plot thickens... Three famous Nobel Prize Laureates, known the world over for their intellectual prowess, inform Nation 2 that the only way to bring about a peaceful solution to the crisis is to dismisses all of its conventional forces and sell all conventional weapons on the world arms market. They advise Nation 2 to use the proceeds of the sale to adopt a computer system wherein any attack on the part of Nation 1 will result in an automatic nuclear response. Should Nation 1 follow these recommendations? Why or why not? (Note: you might want to draw a new game tree). What would be the new sub-game perfect Nash equilibrium? C.

Answer 1