Abstract

We treat government concessions as additions to an expected payoffs schedule rather than as being synonymous with it. Government concessions that add to terrorists’ expected payoffs past some point on a positively sloped risk-reward trade-off schedule will not make all terrorists more risk seeking. Such concessions do not represent certain ‘windfall gains’ to terrorists of the kind that interact with relative and absolute risk aversion. Although the expected payoffs to higher risk actions may be augmented by the government’s concessions, terrorists must still bear risk in order to attain them. Terrorist groups that were unwilling to bear that risk before will not be enticed to bear it after expected payoffs are enhanced. Conversely, negative concessions or penalties will make terrorists more averse to risk because penalties alter the risk-reward trade-off in ways that make lower-risk actions more desirable to risk-averse terrorists. Our paper also explores the risk-reward characteristics of new and innovative terrorist actions relative to the structure of an existing expected payoffs schedule.

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