Prospect theory and the cuban missile crisis

This article tests the predictions of expected-utility and prospect theorie s against the most important dimensions of the Cuban missile crisis, Largel y through use of the most recently released information on the crisis from the American and Soviet governments, I attempt to ascertain the anticipated benefits, costs, and probabilities of success associated with each of the major policy choices that tile key leaders in both superpowers perceived be fore each of the major decisions throughout the crisis was made, Using this information and the logic of extensive-form game-theoretic models of choic e, I construct a baseline for expected-utility theory that helps us to unde rstand when prospect or expected-utility theory provides the butter explana tion for a particular decision. Prospect theory predicts that when individu als perceive themselves to be experiencing tosses at tile time they make a decision, and when their probability estimates associated with their princi pal policy options are in the moderate to high range, they will tend to mak e excessively risky, non-value maximizing choices, I find that the evidence for the Cuban missile crisis supports this prediction for the most importa nt decisions made by both Khrushchev and Kennedy.