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Deterrence and Risk Preferences in Sequential Attacker–Defender Games with Continuous Efforts


Most attacker–defender games consider players as risk neutral, whereas in reality attackers and defenders may be risk seeking or risk averse. This article studies the impact of players' risk preferences on their equilibrium behavior and its effect on the notion of deterrence. In particular, we study the effects of risk preferences in a single-period, sequential game where a defender has a continuous range of investment levels that could be strategically chosen to potentially deter an attack. This article presents analytic results related to the effect of attacker and defender risk preferences on the optimal defense effort level and their impact on the deterrence level. Numerical illustrations and some discussion of the effect of risk preferences on deterrence and the utility of using such a model are provided, as well as sensitivity analysis of continuous attack investment levels and uncertainty in the defender's beliefs about the attacker's risk preference. A key contribution of this article is the identification of specific scenarios in which the defender using a model that takes into account risk preferences would be better off than a defender using a traditional risk-neutral model. This study provides insights that could be used by policy analysts and decisionmakers involved in investment decisions in security and safety.

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Payappalli, Vineet M., Jun Zhuang, and Victor Richmond R. Jose. 2017. "Deterrence and Risk Preferences in Sequential Attacker–Defender Games with Continuous Efforts." Risk Analysis (March). http://onlinelibrary.wiley.com/doi/10.1111/risa.12768/abstract

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