Bauer, Thomas and Rotte, Ralph
Prospect Theory Goes to War: Loss-Aversion and the Duration of Military Combat.
Collaborative Research Center 386, Discussion Paper 97
This paper contributes to the empirical foundation of prospect theory in real-life international relations by testing two of its major implications in the field of military conflict. Using duration analysis for a data set of twentieth century battles, it is shown how the experience of losses contributes positively to the preparedness to continue fighting, up to a point where casualties clearly outweigh any direct utility drawn from ordinary expected-utility theory. Moreover, the empirical results also indicate that the relative position compared to the opponent's is clearly less important for the decision whether to stop a battle or not than the change of one's own position compared to the beginning of the fight.