Predictably Unpredictable: The Limits of Conflict Forecasting
49 Pages Posted: 2 Oct 2015
Date Written: August 25, 2015
Can wars be forecasted? A central difficulty is that warnings of a looming war tomorrow are likely to affect behavior today. Whether decision-makers attempt to prevent its onset or to hasten it, the initial forecast will no longer hold. Predictable conflicts will therefore tend not to occur, and only those that are difficult to forecast will. This endogeneity implies that the wars that we do observe will likely come as a surprise. We test this conjecture by estimating the risk of war as perceived by contemporaries of all inter- and intra-state conflicts between 1816 and 2007. Using historical data of government bond yields, we find that contemporaries indeed tend to underestimate the risk of war prior to its onset, and to react with surprise after its start. We also show that the forecasting record has not improved over the past 200 years, and that interstate wars and those involving democracies are more difficult to predict.
Keywords: War, forecasting, prediction, bonds, endogeneity, finance
JEL Classification: N40, D74, N4, C53
Suggested Citation: Suggested Citation