Game theory can be highly applicable to a national tariff program as it provides a strategic framework for analyzing the interactions between various stakeholders, such as governments, industries, and other countries. Here’s how it can be relevant:
1. Strategic Interaction Between Countries (International Trade)
- Nash Equilibrium: Game theory can help analyze the outcomes of tariff decisions by modeling the actions of different countries as strategic moves. Each country aims to maximize its own welfare (economic growth, political stability, etc.), but the outcome depends on the choices of other countries. The Nash Equilibrium occurs when no country can unilaterally improve its position by changing its tariff strategy.