Following in what may now best be described as a series of recent papers focusing on game theoretic approaches to understanding how terrorist organizations make targeting decision, a uniquely insightful paper came across my desk this morning. In, “Terrorists’ Equilibrium Choices When No Attack Method is Riskless,” the author extends the economic literature on portfolio theory and capital market equilibrium to define a model where terrorist groups and the terrorist within them derive utility from different functions, and thus generate an applicable set (or frontier) of costly targeting options by maximizing the expected utilities from these functions. The author describes the difference as such:
Terroristic agents therefore make decisions on the basis of the expected amount of political influence generated from an attack and the variance of the possible divergence of the amount of political influence generated from an attack from that which was expected…Terroristic agents make decisions on the basis of the expected number of fatalities and the variance of the possible divergence of the number of fatalities from that which was expected
I was particularly impressed by this approach, as it is the first time I have seen a formal model that accounts for this very real conflict within terrorist organizations. Those that study these groups from an organizational perspective will find this very compelling given that this divergence in the goals is very often observed. With greater precision and insight, however, comes a slightly more complicated equilibrium solution. In this case the author must solve a quadratic programming problem in order to define the efficient attack sets; however, these are the types of task for which computers were invented.
Moreover, this method allows for some insight into what attack methods might be contained within the maximally efficient set defined by these utility functions. In the paper the author uses data from RAND-MIPT database on attack type and severity to estimate the type of attack combination portfolios, described as a zero-Beta or equally weighted, that maximize the expected the utilities of terrorists.
The equilibrium model has the advantage of yielding a ‘two combination’ solution. All terroristic groups, regardless of their precise level of risk aversion, can be satisfied by combinations formed from combinations of the zero-Beta combination and the equally weighted combination. More risk- averse terroristic groups will hold a combination with a heavier weighting assigned to the zero-Beta combination. Less risk-averse terroristic groups will hold a combination of attack methods with a heavier weighting assigned to the equally weighted combination.
Of the recent work in this area this paper stands out for its unique approach and highly insightful model. Also, of the papers I have seen this model may be the most applicable to empirical testing, though the author falls short of directly testing the theory in this paper. In all, I highly recommend.
Photo: Wikimedia
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I’m sorry, but while the analysis is sound that terrorists can have dominated strategies for targeting behavior, there is no way to quantify the values of each such that predictive assessment and analysis could be accomplished.
I would like to see the author do a case study of this research – I doubt the assumptions that would be necessary are within statistically coherent bounds.
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It doesn’t seem like a particularly great idea to base target selection on a theory that doesn’t work in practice. Expected returns and variances among assets cannot be accurately estimated from historic data. This calls into question the whole efficient frontier. Like the previous comment, I also suspect that the terrorist target selection parameters cannot be accurately estimated. The field of finance is divided between practitioners who are accountable for their results and academics who are not accountable for their results. I hope that political science does not become focused on theories that have no practical relevance like modern portfolio theory.
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Drew Conway Reply:
December 4th, 2009 at 7:43 am
You raise two important points. I will be the first to admit my ignorance to the history of modern portfolio theory and its subsequent success or failure in financial practice. That said, in so far as this paper provides an alternate view on modeling the decision process for target selection I think it is very valuable. As I said, the most valuable contribution of the above model is that it attempts to balance the difference in derived utility between terrorists as individuals and terrorist organizations as entities.
On the general point about theoretical accountability, I share your concern. Unfortunately, in many sub-discipline—particularly terrorism studies—there empirical evidence simply does not exist. As such, we are often left with many potentially valuable theories in search of data.
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