Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Monday, September 12, 2005

Is this a Credible Threat?

In game theory, strategies are usually pretty ineffective if others in the game believe either

(a) you won't do what you threaten to do, or
(b) even if you do, it won't have any effect.
I.e., threats rarely work if they are not credible.

Consider this one:
Iran warned Sunday that there will be "certain consequences" if it is referred to the U.N. Security Council for possible sanctions over its nuclear activities.

... "If a political decision is made to refer Iran to the U.N. Security Council, it will be entering a lose-lose game," he added. "It will have its own certain consequences and will affect Iran's decisions. We prefer that such a game is not played."
What might be the nature of the consequences? Would Iran cut off the supply of their oil to some countries? So what? Oil is fungible.

Might they start lobbing missiles at Israel? I almost wish they would: we have good reason to believe the Israelis could wipe out Iran's nuclear programme (and more) with ease.

What are the credible threats?
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