The Sensitivity of Critical Risk Values to Small Changes in the Value of the Status Quo

This paper reports on a technical result that we have derived from various formal models that support a prospect-theoretic account of the traditional deterrence game. The result is as follows. In sequential prospect-theoretic play of the traditional deterrence game, under both one-sided and two-sided incomplete information, Challenger's decision over whether or not to threaten Defender can be remarkably sensitive to the specification of the model's parameter values, including very small changes in the valuation of the status quo.