Monday, February 24, 2003

Deterrence vs Revenge

My old college roomie wonders whether DenBeste is serious about deterrence, or simply consumed with a lust for Vengence when he declares that "France and Germany must be crushed". Given my recent post on thinking about anger as a consumption good, it's something that's been on my mind lately.

In narrow game theory terms, there is no difference between a threat, a commitment, vengence, or deterrence. For contracts to be successful, the party that enforces it or collects the penalty for breaches must have some independent incentive to do so, otherwise it is in everyone's best interests to simply renegotiate terms. In other words, for a contract to be truly binding, both parties must also be interested in whatever the contract promises, otherwise the penalties are simply not credible. Suppose a struggling dieter convinces a restaurateur to penalize him $10,000 if he catches him eating eclairs in his restaurant. When the time comes and the dieter desperately wants eclairs, he can tell the restaurateur that the $10,000 fine is so large he will never violate the contract and so will never collect the fine, making the contract worthless. Instead, why don't they renegotiate? Perhaps the dieter would buy a round of drinks for the house if he could be released from his contractual obligations?

To make a threat, or commitment, credible, you need to convince the other party that you will refuse to renegotiate even if doing so is in your best interest -- that is, you will accept no money over some money, or some pain over no pain. After all, why would you need to commit to something if it made sense for you to do it all the time? You only need to commit if there's a risk you will back out. Deterrence, at its heart, is the art of crediblity.

There are lots of ways to try and make threats (or commitments) credible. Some people act crazy (like North Korea) and call the other's bluff. Others talk of higher principles they will stand by no matter what. Some folks just have a short fuse and consume a lot of anger, enabling them to follow through on threats. So when is retaliation driven by the cold calculation of deterrence, and when is it driven by the hot flash of anger? Unfortunately, one can only tell after the fact--if it's of net benefit to you it's deterrence, otherwise it's just anger. Stumblingtongue's image of the accountant with the very large axe is not so far off.


Post a Comment

Subscribe to Post Comments [Atom]

<< Home