Prospect Theory and the Cuban Missile Crisis

Abstract

This article tests the predictions of expected-utility and prospect theories against the most important dimensions of the Cuban missile crisis. Largely through use of the most recently released information on the crisis from the American and Soviet governments, I attempt to ascertain the anticipated benefits, costs, and probabilities of success associated with each of the major policy choices that the key leaders in both superpowers perceived before each of the major decisions throughout the crisis was made. Using this information and the logic of extensive-form game-theoretic models of choice, I construct a baseline for expectedutility theory that helps us to understand when prospect or expectedutility theory provides the better explanation for a particular decision. Prospect theory predicts that when individuals perceive themselves to be experiencing losses at the time they make a decision, and when their probability estimates associated with their principal policy options are in the moderate to high range, they will tend to make excessively risky, non-value maximizing choices. I find that the evidence for the Cuban missile crisis supports this prediction for the most important decisions made by both Khrushchev and Kennedy.

Avoiding Catastrophe: The Interactional Production of Possibility during the Cuban Missile Crisis

“…The same can be said of many theoretical treatments, such as those written from a gametheoretic (Bennett 1995) or more psychological (Haas 2001) perspective. The thinking seems to be that it was essentially Kennedy who made the decisions, in light of his clear-sighted assessment of the objective situation or, alternatively, universal psychological dispositions (such as loss aversion), in which case there is not much need to get mired in the details of what was said behind the closed doors of the Cabinet Room (about which, again, no one knew much until recently).…”

Politics of Risk-taking : Welfare State Reform in Advanced Democracies

“…In another interesting contribution, Haas (2001) shows that prospect theory explains the most important decisions in the Cuban missile crisis better than expected utility theory does. Specifically, he uses material from Soviet archives and information from the US side that has been made recently available, particularly the tapes of the Executive Committee of the National Security (ExCom), to assess what the key actors in the crisis -most prominently Presidents Kennedy and Khrushchev -believed to be the likely costs, benefits and probabilities of success involved in each of the major policy choices at each stage of the crisis (Khrushchev's decision to send missiles to Cuba; Kennedy's decision to implement the blockade; Kennedy's decision to continue to threaten the Soviets once the blockade had been established; Khrushchev's decision to return the missiles to the USSR; and Khrushchev's decision to bluff Kennedy from October 22 to October 28 in order to get a better deal before the missiles were removed).…”

Sequential Analysis of Deterrence Games with a Declining Status Quo

“…In prospect-theoretic treatments of the foregoing issue, an actor's valuation of the status quo determines the actor's attitude toward risk and thereby the actor's risk-related behaviors (Berejikian, 1992(Berejikian, , 1997(Berejikian, , 2002Haas, 2001;Levi & Whyte, 1997;Levy, 1996Levy, , 1997Levy, , 2002McDermott, 1998;Weyland, 1996). An extension of the finding that actors are risk averse over gains and risk acceptant over losses suggests that a decision maker will choose the risk-averse act, not threaten, when the value of the status quo is positive and will choose the risk-preferring act, threaten, when the value of the status quo is negative.…”

“…The presumption is that Challenger will threaten only when the perceived loss is sufficiently large and sufficiently negative. Other studies imply that even a moderate loss or, even stronger, any negative valuation of the status quo is sufficient to induce risk-seeking behavior (Haas, 2001;Berejikian, 1992Berejikian, , 2002. 183 Tversky and Kahneman (1992, 301-302) argue, however, that risk-related behaviors are determined jointly by both the valuation and the probability weighting function.…”