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Terrorism: A Game-Theoretic Approach

In: Handbook of Defense Economics


  • Sandler, Todd
  • Arce, Daniel G.


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.

Suggested Citation

  • Sandler, Todd & Arce, Daniel G., 2007. "Terrorism: A Game-Theoretic Approach," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.),Handbook of Defense Economics, edition 1, volume 2, chapter 25, pages 775-813, Elsevier.
  • Handle: RePEc:eee:hdechp:2-25

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    Cited by:

    1. Phillips Peter J, 2011. "Lone Wolf Terrorism," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 17(1), pages 1-31, March.
    2. Daniel Arce & Sneha Bakshi & Rachel Croson & Catherine Eckel & Enrique Fatas & Malcolm Kass, 2011. "Counterterrorism strategies in the lab," Public Choice, Springer, vol. 149(3), pages 465-478, December.
    3. Holt, Charles & Kydd, Andrew & Razzolini, Laura & Sheremeta, Roman, 2014. "The Paradox of Misaligned Profiling: Theory and Experimental Evidence," MPRA Paper 56508, University Library of Munich, Germany.
    4. Subhayu Bandyopadhyay & Todd Sandler, 2011. "The Interplay Between Preemptive and Defensive Counterterrorism Measures: A Two‐stage Game," Economica, London School of Economics and Political Science, vol. 78(311), pages 546-564, July.
    5. Daniel G. Arce & Dan Kovenock J. & Brian Roberson, 2009. "Suicide Terrorism and the Weakest Link," CESifo Working Paper Series 2753, CESifo.
    6. Bård Harstad, 2013. "The Market for Conservation and Other Hostages," CESifo Working Paper Series 4296, CESifo.
    7. Michael McBride & Gary Richardson, 2012. "Stopping Suicide Attacks: Optimal Strategies and Unintended Consequences," Defence and Peace Economics, Taylor & Francis Journals, vol. 23(5), pages 413-429, October.
    8. Harstad, Bård, 2016. "The market for conservation and other hostages," Journal of Economic Theory, Elsevier, vol. 166(C), pages 124-151.
    9. Soumyanetra Munshi, 2013. "Analysis Of Conflict Within A Contested Land: The Case Of Kashmir," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(3), pages 261-292, June.

    More about this item


    Defense in a Globalized World;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War


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