There are two purposes to this confer item...a) outline Prospect theory/relate other cognitive definitions, and b) give a couple of suggestions if you are using prospect theory to explain behaviors of your Rogue State or U.S. action towards a rogue. Prospect Theory: Generally--Losses are so salient in peopleÕs mind, that they will put more on the line to avoid losses, in spite of possible gains. Specifically--Prospect theory relies heavily on how a person frames a situation, and what the reference point is. First, a reference point can be related to the status quo, or what a person/country thinks the status quo should be. It is an anchoring mechanism... the reference point is a personÕs goal which anchors him/her in light of other events and decisions. The connection between reference point and how a person frames a situation is that according to individualÕs reference point, a person will frame the situation with a loss more salient or a gain more salient. If a person pays more attention to gain than losses, then the person is more likely to be risk averse. Caution is the mind set when pursuing gains... Also related is certainty effect: that people will choose the guarantee vs. a risky, possibly bigger pay off. ex...People in experiments decided to take a 100% chance of gaining $500, than 80% chance of getting $1000 The expected value of the first bet (1.0 X $500 or $500) is lower than the expected value of the second bet (.80 X $1,000 or $800). And a rational person should choose the bet with the highest expected value, i.e., the second bet. But because of the certainty effect, people choose the certain option over the uncertain one, irrespective of the expected value. If a person sees losses as more salient, which is most likely, (it hurts more to lose $20, than elated to find $20. This leads to loss aversion, a cornerstone of Prospect theory). People become risk acceptant. They will risk more to avoid a loss than they would to achieve a gain. They are so preoccupied with the possible loss, that may go Òall outÓ in order to avoid losing or getting to far from their reference point. Here do we see a possible explanation for why leaders engage in risky and sometimes, incomprehensible acts, or why deterrence fails. If a leader is bent on avoiding losses, or so fearful of losing or falling away from the reference point, he/she will risk more, put more on the line, to avoid this loss. In class, we used the example of Syria and AssadÕs fear of forever losing the Golan Heights. If Assad is so fearful of never getting a chance of regaining the Heights, then this would be his motivational factor in his risky behavior.... if he engages in military conflict, he would be willing to risk more (civilian lives, chance of peace with Israel, military assets, international sanction) to curb losses, than he would to gain something else. For this reason deterrence will fail... because Assad is willing to risk possible punishment to avoid the loss of his chance to regain the Heights. Also related is the Endowment effect, where one puts more value on what he/she must part with, than it normally would be valued at. If the term ÒBasement of FearÓ is used to describe the cognitive explanation of leaderÕs sometimes ÒirrationalÓ or Ònon-value maximizingÓ behavior, then it is also important to focus on the misperceptions and biases of leaders that lead to loss aversion (prospect theory). As Levy comments in An Introduction to Prospect Theory, ÒIt [endowment effect and prospect theory] challenges the assumptions that preferences are invariant under different representations of equivalent choice problems (because framing affects preferences)...Ó In other words, unlike the assumption of rationality of a unitary actor, prospect theory and endowment effects says that it is the leaderÕs framing of an event that will dictate his/her preferences, which will lead back to prospect theory. Pathway to decisions -- Prospect Theory (chart looks better on WORD) Threat? Perception by leader Misperception/Biases fears/sees only fears/sees only no percep. preoccupation losses to losses to of threat with possible domestic politics internatl comm. gains Internal threat External threat Gain Motivated biases biases biases Risk acceptant to avoid loss Risk averse to gain (seems irrational) (certainty v. gamble) It is the motivated/unmotivated framing of events that will determine what type of path a leader chooses. When the biases take place, and certain outcomes are heavily emphasized, then it is the mere gain/loss, according to prospect theory, that will motivate a leader to be non-value maximizing. Sometimes, people focus on whether the fear/motivation bias is internal or external. As the contributors of Avoiding Losses/Taking Risks: Prospect Theory and International Conflict have interpreted and applied prospect theory into International Politics and decision making processes, the labeling of gains/losses as internal or external is almost irrelevant. As Dr. Andrew Ward of the U of M Psychology department explained, what most psychologist consider internal factors (personality, psychological profile, etc.) is completely different than what political scientists view as internal (domestic politics). The more proper view of prospect theory in relation to internal/external threat is how the actor views the threat. If the actor views the salient, most feared loss as internal (domestic), then this is what will drive the actor to act. If the actor views the salient loss as external (outside threat, punishment from the United States, etc.), then this is what will drive the actor to act. Both are included in the idea of basement of fear. Barbara Farnham uses the example of FDRs role in the Munich Crisis to illustrate this point. According to Farnham, FDRs preferences changed from non-intervention, to the necessity of American intervention in 1938. Initially, Roosevelt believed that the European crisis ... Òdid not represent an immediate threat to the United States. In mid-crisis, he apparently became convinced that it did pose a threat, despite the fact, from American point of view, the objective situation was unaltered. Roosevelt had in fact come to regard an out-come of war as in some sense a loss for the United States and thus felt impelled to take action to avoid it (Avoiding Losses/Taking Risks:Prospect Theory and International Conflict p.42) The difference in representation caused a change in preference. Farnham argues that according to prospect theory, since leaders are risk averse when focusing on gains, and risk acceptant when trying to avoid losses, Roosevelt became risk acceptant in order to avoid a loss (war). Before the change in representation, FDR was risk averse, not willing to a) make the situation worse / have no effect on the crisis and b)face domestic anger. After the change, FDR became risk acceptant and was willing to face the two possibilities in order to avoid war. This situation not only illustrates the importance of framing and perception, but also shows how internal/external motivation a) are subjective to the perceiver, and b) are motivations, regardless of internal/external attributions. So to incorporate Prospect Theory into Papers, it is important to ask these questions about the situation... 1)What does the person perceive the status quo to be? What is the person's reference point? 2)What would this person/country stand to lose? 3)What type of behavior did this country engage in order to avoid these losses? or Was he/she risk averse in the face of possible gain? 4)Were there risks that this country would like to have avoided, but instead chose to more forward (deterrence failure) to avoid loss? Avoiding Losses/Taking Risks: Prospect Theory and International Conflict Edited by Barbara Farnham With:Jack S. Levy, Robert Jervis, Barbara Farnham, Rose McDermott, Audrey McInerney, and Eldar Shafir.