(2019)1 mentioned on Asia Times that “Trade war turns into a game of chicken”. Explain how the US-China trade war can be seen as the Game of Chicken (For simplicity, just consider the non-repeated version of this game like the one in the course’s slides) and predict/discuss the results of this trade war using game theory. In this question, you are expected to: 1. Providing the basic game settings: The type of game, number of players, possible strategies (actions) for each player. The information about the trade war can be found here. 2. Constructing hypothetical payoffs: You need to give some numbers to represent the payoffs for each strategy of each player in the game. To do this, you need to identify the type of payoffs (profits, utility, amount of money...). Then, you assign an appropriate number for each strategy of the player. For example, if the US plays strategy A and China plays strategy B then the US’s payoff is ... and China’s payoff is ... After that, construct the payoff matrix for the game. 3. Finding the theoretical Nash’s Equilibrium: Based on the payoff matrix that you have constructed, find the theoretical Nash Equilibrium of that game. 4. Discuss/predict the outcome of the REAL trade war: According to your hypothetical game, what is the probable outcomes of the US-China trade war? Do you think that this outcome will occu
Watts (2019)1 mentioned on Asia Times that “Trade war turns into a game of chicken”. Explain how the
US-China trade war can be seen as the Game of Chicken (For simplicity, just consider the non-repeated
version of this game like the one in the course’s slides) and predict/discuss the results of this trade war
using
1. Providing the basic game settings: The type of game, number of players, possible strategies (actions)
for each player. The information about the trade war can be found here.
2. Constructing hypothetical payoffs: You need to give some numbers to represent the payoffs for each
strategy of each player in the game. To do this, you need to identify the type of payoffs (profits, utility,
amount of money...). Then, you assign an appropriate number for each strategy of the player. For
example, if the US plays strategy A and China plays strategy B then the US’s payoff is ... and China’s
payoff is ... After that, construct the payoff matrix for the game.
3. Finding the theoretical Nash’s Equilibrium: Based on the payoff matrix that you have constructed,
find the theoretical Nash Equilibrium of that game.
4. Discuss/predict the outcome of the REAL trade war: According to your hypothetical game, what is
the probable outcomes of the US-China trade war? Do you think that this outcome will occur in reality?
In this part, you have to collect and analyse the data about the trade war, compare what you observe
with the assumptions of the game and then discuss whether the real trade war will have the same outcome
as the game of chicken.
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