The war game

This Riddler puzzle is about game theory… War or peace?

Two countries are eyeing each other’s gold. At the beginning of the game, the “strength” of each country’s army is drawn from a continuous uniform distribution and lies somewhere between 0 (very weak) and 1 (very strong). Each country knows its own strength but not that of its opponent. The countries observe their own strength and then simultaneously announce “peace” or “war.”

If both announce “peace,” then they each stay quietly in their own territory, with their own gold, which is worth \$1 trillion (so each “wins” \$1 trillion). If at least one announces “war,” then they go to war, and the country with the stronger army wins the other’s gold. (That is, the stronger country wins \$2 trillion, and the other wins \$0.)

What is the optimal strategy of each country (declaring “peace” or “war”) given its strength?

Extra credit: What if the countries don’t announce at the same time and instead one announces first and the other second? What if the value of winning the war were \$5 trillion rather than \$2 trillion?

Here is my solution for the first part, where both countries declare their intentions simultaneously.
[Show Solution]

Here is my solution for the second part, where the countries declare their intentions sequentially.
[Show Solution]

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