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Optimism and commitment: An elementary theory of bargaining and war

Clara Ponsati and Santiago Sánchez-Pagés ()

No 2010-101, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: We 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.

Keywords: bargaining; incomplete information; commitment; war (search for similar items in EconPapers)
Date: 2010
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Related works:
Journal Article: Optimism and commitment: an elementary theory of bargaining and war (2012) Downloads
Working Paper: Optimism and commitment: An elementary theory of bargaining and war (2010) Downloads
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