Conflict and Attitudes Toward Risk

Abstract

The outcome of conflict is rarely known with certainty before it occurs. This is true even when those involved have perfect information about each other's capabilities and idiosyncracies. In military contexts there is enough residual uncertainty in the battlefield so that the side with the superior force cannot be guaranteed to win. Similarly, in cases of economic warfare (trade wars, battles for market share, rent-seeking situations), greater expenditure of resources than one's opponent does not necessarily yield a higher ex post payoff. Consequently, one would expect attitudes toward risk to influence the strategic choices made by parties that are about to engage in conflict and, through these choices, the likelihood of winning. This paper explores the effect of differential attitudes toward risk in a model of conflict.' Is greater risk aversion than one's opponent advantageous or not, and does increasing risk aversion reduce or increase the resources expended on conflict? These are the two main questions examined under two alternative institutional arrangements.

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