Crying about a Strategic Wolf
36 Pages Posted: 4 Nov 2016 Last revised: 13 Apr 2018
Date Written: March 13, 2018
We analyze cheap talk warnings about a strategic adversary, with applications to national security and cybersecurity. Each period an expert receives a noisy private signal about whether attack by the adversary is feasible. The expert wants to warn a decision maker while also maintaining credibility for future warnings, but unlike in a standard cheap talk game the adversary can undermine the expert’s credibility by delaying attack. As a result, both delayed attacks and false alarms can arise in equilibrium. Delay of attack, however, can reinforce the expert's truthtelling incentive, and thus the expert and decision maker are sometimes better off when the adversary is strategic. A running theme is a trade-off between stakes and harm, and these players may be worse off against a resource-constrained attacker. We highlight the importance of commitment power and observability in defending against attacks.
Keywords: Repeated games, cheap talk, economics of information, national security, cybersecurity
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