Optimism and commitment: An elementary theory of bargaining and war
AbstractWe propose an elementary theory of wars fought by fully rational contenders. Two parties play a Markov game that combines stages of bargaining with stages where one side has the ability to impose surrender on the other. Under uncertainty and incomplete information, in the unique equilibrium of the game, long confrontations occur: war arises when reality disappoints initial (rational) optimism, and it persist longer when both agents are optimists but reality proves both wrong. Bargaining proposals that are rejected initially might eventually be accepted after several periods of confrontation. We provide an explicit computation of the equilibrium, evaluating the probability of war, and its expected losses as a function of i) the costs of confrontation, ii) the asymmetry of the split imposed under surrender, and iii) the strengths of contenders at attack and defense. Changes in these parameters display non-monotonic effects.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-101.
Date of creation: 2010
Date of revision:
bargaining; incomplete information; commitment; war;
Other versions of this item:
- Clara Ponsati & Santiago Sanchez-Pages, 2012. "Optimism and commitment: an elementary theory of bargaining and war," SERIEs, Spanish Economic Association, vol. 3(1), pages 157-179, March.
- Clara Ponsati & Santiago Sanchez-Pages, 2010. "Optimism and commitment: An elementary theory of bargaining and war," ESE Discussion Papers 198, Edinburgh School of Economics, University of Edinburgh.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
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