Abstract

One of the most widely accepted explanations for why wars occur despite its Pareto-suboptimality is mutual optimism: if both sides expect to gain a lot by fighting, war becomes inevitable. The literature on mutual optimism typically assumes mutually optimistic beliefs and shows that, under such an assumption, war may occur despite its Pareto-suboptimality. In a war–peace model, we show that, if players neglect the correlation between other players’ actions and their types—a well-established concept in economics—then players’ expected payoffs from war increase relative to conventional informational sophistication predictions, hence providing a microfoundation of mutual optimism.

Highlights

  • If rational country leaders have mutually consistent beliefs about the outcome of a costly war, a bargain in which Pareto improves upon war must be reachable

  • We provide a microfoundation for mutual optimism: namely, we show that mutual optimism arises when players correctly predict the distribution of other players’ actions and types but—in contrast to informational sophistication—draw no inference about the correlation between the two

  • Mutual optimism about the outcome of war is typically exogenously imposed in models on rationalist explanations for war

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Summary

Introduction

If rational country leaders have mutually consistent beliefs about the outcome of a costly war, a bargain in which Pareto improves upon war must be reachable. Since many war–peace models predict a positive equilibrium relation between a player’s resources and their military action, one could sidestep the explicit modeling of military actions and directly assume that a player’s probability of victory increases in their resources We make this monotonicity assumption in the main part of the present paper (until Section 6), since for our purposes, we are not interested in players’ choice of military actions but in the characterization of players’ expected payoffs from war with and without informational naivety. An informationally naïve player correctly predicts the distribution of possible levels of resources of their rival and of the possible probabilities of victory, but in contrast to informational sophistication, they draws no inference about the correlation between the two: in other words, an informationally naïve player fails to infer the mapping from each possible level of resource of their rival to their corresponding probability of victory We show that this failure systematically increases players’ expected payoffs from war; that is, informational naivety microfounds mutual optimism.

A Stylized Example and the Intuition
The Model
The Main Result
Extensions
Game-Free Model
Game-Idiosyncratic Model
Informational Sophistication
Informational Naivety
Comparative Statics
Findings
Discussion
Full Text
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