Interestingly enough, Game Theory can be an appropriate tool when it comes to analyzing terrorism. It helps us to look at the strategic actions of governments and terrorists where their actions are mutually dependent.

Now to look at the various situations where Game Theory can be applied – The first obvious application that would come to mind is where you have the terrorist group as one player and the government as the other and the four outcomes can be a successful attack where the terrorists get what they want, a successful attack where the government does not give in to the demands, no attack or an attack that results in logistic failures. Another application could be a three player game in which the players could be two targeted countries and one terrorist group where each country would chose its deterrence expenditures and the terrorist group would chose one target nation considering the payoffs and the possibility of a successful attack in each case. A yet another application would be the case where the terrorists would know their true strength but the government would have to figure out the correct strength of the group based on their attacks, threats, demands etc. This is often the case as some terrorist organizations like to issue overblown, baseless threats, that they are not actually capable of executing, just to increase the pressure on their targets.

We could also have a case where the terrorists and the host country have an understanding and are accommodating each other. So this leaves the other countries with three options: retaliating against the host country and the terrorist group, accommodating the terrorist group or just doing nothing. Some game theorists have shown how the option of accommodating the terrorists dominates in this case. This leads to the Prisoner’s Dilemma where countries seek to accommodate the terrorists in which case they would have to break the trust of other countries who were helping them curtail terrorism in the first place.

As a matter of fact, game theory can even help enlighten the government officials about the effectiveness of their anti-terrorism policies. For example, let’s think of a game where the US and EU are the two players. They face a common threat by a third country/terrorist organization. Now if either of the country preempts the threat, both EU and US get 4 in benefits and the country preempting incurs 6 as the costs for preempting. This way, the payoffs of the country preempting would be -2 and that of one getting the free ride would be 4. But if both EU and US share the cost of preempting, they would each receive 2 as the net benefits. This again results in prisoner’s dilemma and both players end up not preempting.

Now consider the second case where the US preemption would give it a benefit of 8 (due to it being a favorite target for various terrorists) and the EU still gets a payoff of 4. The costs of preemption are still 6. If we calculate the payoffs in each case, we would see that US would have a dominant strategy to preempt and EU would have a dominant strategy to free ride, leading to a Nash Equilibrium. And this game representation pretty well characterizes the US position after the 9/11 attack.

For further reading. , please refer to: http://www-rcf.usc.edu/~tsandler/Terror_Games.pdf