PROSPECT THEORY AND POLITICAL SCIENCE Jonathan Mercer

14 MERCER
variance in outcome. Even access to primary sources might not resolve the debate
over the riskiness of an actor’s policy. For example, was President Eisenhower
pursuing a risk-averse strategy in the 1956 Suez crisis (McDermott 1998) or merely
a rational strategy (Richardson 1993)? This problem, like many, is as serious as one
wishes to make it. Observers, like actors, will sometimes differ in their assessment
of risk, and this makes prospect theory difficult to test.
LOSS-AVERSION EFFECT OR RATIONAL DECISION? Loss aversion can be rational. A
wild gamble to avoid a loss can be rational if one has nothing left to lose, or if
one holds certain beliefs and desires that make that gamble rational. Goemans
illustrates the first type of rational gamble: when one has nothing left to lose (see
also Downs & Rocke 1995, pp. 56–75). Goemans (2000) suggests that states persist
in losing war efforts in an attempt to escape domestic political punishment for
failure. Semirepressive, moderately exclusionary regimes will gamble that through
luck or a new strategy they can win a war. For example, the German leadership in
1917 felt their prospects for victory in World War I were grim and for this reason
they embraced unrestricted submarine warfare. “The German leadership was now
willing to try a very risky strategy because they estimated that was the only way to
achieve the terms of settlement necessary to stave off punishment...” (Goemans
2000, p. 97). Although the risky bet on naval warfare did not maximize the expected
utility of the German people, German leaders knew that any defeat would (at a
minimum) end their careers and usher in a new social order. (Of course, if leaders
know that they cannot survive even small losses, then these leaders should not start
wars that they know they might lose.) Goemans’s careful analysis demonstrates
that actors in semirepressive and moderately exclusionary regimes can be both
rational and risk acceptant in the domain of loss.
Distinguishing rational from irrational gambles demands testing alternative explanations
against empirical cases. Policy makers confronting important decisions
should approximate rational decision making. Often they do not. For example, in
a study with a contemporary echo, Richardson (1993) examined British decision
making during the Suez crisis to test prospect theory and rational choice models
of decision making (pp. 176, 183–185, 187):
[T]he process bore little or no relation to rational norms. There was no systematic
evaluation of options or calculation of their costs and consequences.
Having resolved to fight, British leaders, for their part, simply discounted all
risks attendant on that decision.... They made no effort to marshal international
support for their action.... No serious effort was made to establish the
financial costs of anticipated military operations.... Moreover, the initial estimates
that were made were extraordinarily optimistic.... Although Treasury
officials warned of the dangers of “going it alone,” the chancellor and the
Egypt Committee remained undeterred.... [T]here appears to have been very
little planning for future developments once Nasser was toppled; only a casual
assumption that he would be replaced by a more compliant leader.