This chapter surveys the past applications of game theory to the study of terrorism. By capturing the strategic interplay between terrorists and targeted governments, game theory is an appropriate methodology for investigating terrorism and counterterrorism. Game theory has been used to examine the interaction among targeted governments, the interface between factions within a terrorist organization, and the interplay between diverse agents (e.g., rival terrorist groups). This chapter identifies a host of externalities and their strategic implications for counterterrorism policies. In addition, the chapter indicates novel directions for applying game theory to terrorism-related issues (e.g., cooperative collectives to strengthen borders). For counterterrorism, we use normal-form games to distinguish proactive from defensive policies. Although both policy types can be represented with similar games, we identify essential strategic differences between these policy classes. When targeted governments must allocate resources among antiterrorism measures, there is generally a dominance of defensive over proactive countermeasures against transnational terrorism. The resulting outcome gives a suboptimal equilibrium. The policy prognosis is much better for domestic terrorism as a central government can internalize externalities among alternative targets. For transnational terrorism, dilemmas also arise when counterterrorism is investigated for continuous choice variables. Too much action is associated with defensive measures, while too little action is associated with proactive measures. This follows because defensive responses are strategic complements, while proactive responses are strategic substitutes for targeted governments. These same strategic concepts are crucial for understanding the interaction among political and military wings of a terrorist group. Game-theoretic notions also inform about interdependent security choices where the safety achieved by one at-risk agent is dependent not only on its precautions but also on those of other agents. Coordination games are particularly appropriate for analyzing the pitfalls of numerous aspects of international cooperation - for example, freezing terrorist assets and denying safe havens. We identify many roadblocks to effective international cooperation. For hostage negotiations, we show that the never-concede policy of governments hinges on at least five unstated assumptions that seldom hold in practice. Thus, even the staunchest proponents of the no-concession policy have reneged under the right circumstances. Ways to bolster adherence are indicated. The chapter also investigates the influence of asymmetric information when terrorists are better informed about the strength of the governments than the other way around. A model is put forward that unifies two alternative approaches based on the terrorists' preferences for revenge or resolution. Recent contributions involving asymmetric information and terrorism are discussed.
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ReDIF This chapter was published in: Keith Hartley & Todd Sandler (ed.) , Elsevier, chapter 25, pages 775-813, 2007.
Find related papers by JEL classification: H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
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