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front.qxd 1/28/98 9:03 AM Page i Risk-Taking in International Politics front.qxd 1/28/98 9:03 AM Page ii front.qxd 1/28/98 9:03 AM Page iii Risk-Taking in International Politics Prospect Theory in American Foreign Policy R OSE M C D ERMOTT Ann Arbor front.qxd 1/28/98 9:03 AM Page iv Copyright © by the University of Michigan 1998 All rights reserved Published in the United States of America by The University of Michigan Press Manufactured in the United States of America c Printed on acid-free paper 2001 2000 1999 1998 4321 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher. A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data McDermott, Rose, 1962– Risk-taking in international politics : prospect theory in American foreign policy / Rose McDermott. p. cm. Includes bibliographical references and index. ISBN 0-472-10867-0 (cloth : acid-free paper) 1. United States—Foreign relations—Decision making. 2. International relations—Decision making. 3. Risk-taking (Psychology) I. Title. JZ1480.M35 1998 327.73'001'9—dc21 97-21113 CIP front.qxd 1/28/98 9:03 AM Page v For my mentors Robert Jervis and Philip Zimbardo with admiration, affection, and appreciation front.qxd 1/28/98 9:03 AM Page vi front.qxd 1/28/98 9:03 AM Page vii Contents Acknowledgments ix Chapter 1. Introduction 1 2. Prospect Theory 15 3. The Iranian Hostage Rescue Mission 45 4. The Decisions about Admitting the Shah 77 5. The U-2 Crisis 107 6. The 1956 Suez Crisis 135 7. Conclusions 165 Notes 187 Bibliography 225 Index 233 front.qxd 1/28/98 9:03 AM Page viii front.qxd 1/28/98 9:03 AM Page ix Acknowledgments This work would not have been possible without the sustained support and guidance of numerous friends and advisors. My most profound and overriding debts lie with my mentors, Robert Jervis and Philip Zimbardo, to whom this book is humbly dedicated. Robert Jervis’s advice, insight, and support have critically informed every stage of this process. His integrity is unmatched, his loyalty unwavering, and his brilliance unsur- passed. Without his work, mine would not have been possible. Philip Zim- bardo, in addition to triggering my initial interest in psychology, has been unfailing in his enthusiasm, unparalleled in his faith, and unconditional in his friendship. In addition, I owe a deep and abiding intellectual debt to the late Amos Tversky, whose ideas inspired this work, and whose training and generosity I have bene‹ted from enormously. I would like to thank Chip Blacker for his faith, help, and inspiration in the earliest stages of this project. I am deeply grateful to Jonathan Mer- cer, John Sullivan, Martin Sampson, and two anonymous reviewers for very helpful and challenging comments and criticisms on earlier versions of this manuscript. I am grateful to Lynn Eden for her consistent support and encouragement throughout this work. I express my thanks to Charles Myers, Kevin Rennells, and the University of Michigan Press for patience, skill, and responsiveness. I want to thank Margaret Padden for her help with the ‹gures. Steve Fish, in addition to offering extremely thoughtful comments on the manuscript, has provided encouragement, solace, and support in more ways than I can count. I thank Kurt Weyland for his insis- tence on adequate rigor, and I congratulate him on his ultimate conversion to the light of prospect theory. I am grateful to my mother for her endless support. I have incurred profound debts among many friends who have pro- vided me with unceasing love, support, and encouragement throughout this process, and I happily acknowledge their critical contributions. I want to thank Katie Greeno who, in addition to originally editing the entire dis- sertation on which this book is based, has offered an in‹nite bounty of brilliance, wit, and compassion since I ‹rst met her in Lee Ross’s decision- making class before I even entered graduate school. I thank Lisa Butler for front.qxd 1/28/98 9:03 AM Page x x Acknowledgments good advice well received at a critical time and much nurturance through- out. I would like to thank Margaret Sullivan, Trisha Dorff and Liddy Manson for their continuous loyalty, thoughtfulness, understanding, and care. In addition, I am grateful to my cousin Tom Schuttenhelm for his artistic aesthetic and companionship over the course of the later stages of this project. Finally, I would like to express my appreciation to two people who without being involved in political science have nonetheless helped me to function within it. I wish to thank Johanna Putnoi for teaching me through nurturance and example how to ‹nd more resources within myself. I would like to gratefully acknowledge Iris Ascher, who, without reading a word of this manuscript, did everything right to make it possible for me to both start it and complete it. ch1.qxd 1/28/98 9:04 AM Page 1 CHAPTER 1 Introduction This book is essentially, and fundamentally, about the nature and struc- ture of risk-taking behavior. Risk is a central feature in everyday life. We all take risks all the time, often in ways we do not even recognize. In many cases, we do not appreciate the extent of the risks we take; in others, we overestimate the risks we encounter. We usually do not think about the risks inherent in driving a car or participating in sports activities, but we actively fear the objectively low-level risks associated with food additives or ›ying on airplanes. Risk is often a critical component of choice. One way to think about risk is in terms of a relative threat to values. Risk-taking behavior clearly involves dynamics of strategic interaction between factors that might threaten certain values and factors that might promote other values. Risk- taking enters the equation when we do not know, or do not care about, the impact of these factors on our options prior to our choice. But the study of risk-taking is not just a sterile academic enterprise. Fear and greed drive risk-taking behavior. By de‹nition, risk implies some fear of losing an important value or failing to obtain some desired goal. Assessments of risk are inherently probabilistic; outcomes may or may not occur, and they may or may not be devastating or bene‹cial in their effect. Indeed, in many cases, the real value of the outcome is unknown in advance, and the magnitude of its potential effect is unclear as well. The study of risk is often more precise, however, than a vague sense of potential loss (fear) or gain (greed) would suggest. Obviously, the bal- ance of a particular decision maker’s fear and greed varies from situation to situation, just as the nature of these incentives shifts from individual to individual. The likelihood of taking chances in pursuit of certain goals or to avoid costs can be thought of as risk propensity. Many theories of risk offer formal mathematical treatments of the distribution of outcomes and their relevant utilities and payoff matrices. Other theories are less formal in their descriptions. However, there are some basic tenets that these theories about risk have in common. First, risk is inherent in choice and can substantively affect the decision made among various prospects. Second, it is assumed that options can be ch1.qxd 1/28/98 9:04 AM Page 2 2 Risk-Taking in International Politics ordered in some meaningful hierarchy of preferences. Last, risk is related to the distribution of the outcomes and how these outcomes are valued by the decision maker.1 Risk need not be a static concept; indeed, it is much more realistic to think of risk in dynamic terms. As values shift over time in response to internal or external factors, perceptions of threat, and therefore risk, are likely to shift as well. Throughout, perceptions of both value and threat remain critical to a decision maker. In some psychological studies, risk propensity is seen as a stable per- sonality trait of an individual that in›uences his or her behavior across sit- uations and over time.2 This is not the way risk propensity will be dis- cussed here; rather, risk is understood as a function of the situation, seen in terms of losses (costs or fears) and gains (opportunities or greed), not as a predetermined product of an individual decision maker’s personality. Justification This study seeks an explanation for certain irregularities in state behavior: why do nations take crazy risks, like the Iranian rescue mission; throw good money after bad, as in Vietnam; forgo easy gains, by terminating the Gulf War before reaching Baghdad; and so on? This study asks how cen- tral decision makers perceive and respond to risk in their decisions about foreign policy. Why might a president respond differently when con- fronting the same decision over time, as Carter did when he considered admitting the Iranian Shah into the United States for asylum? Conversely, why might a president respond similarly to different situations that take place simultaneously, as Eisenhower did by not responding militarily to either the Soviet invasion of Hungary or Nasser’s nationalization of the Suez Canal? The answers to these questions all point in the same direction: issues of risk are central to understanding decision making in international politics. The political problems raised by variations in response to risk encom- pass some of the central questions that have traditionally preoccupied the discipline of political science.