Tag: Risk

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Strategic tightrope walking

United States President John F. Kennedy declared a naval blockade in Cuba on 22 October 1962, after a week of internal deliberations. The Soviet Union could have reacted to this action by increasing the risk of nuclear conflict to critical levels, which Kennedy believed had a one-third to one-half chance of occurring. After days of tension, statements, and clandestine talks, Khrushchev chose to avoid direct confrontation, withdrawing the missiles from Cuba and returning them to the Soviet Union. This was done in exchange for a promise from the United States to withdraw its missiles from Turkey in the near future. Khrushchev chose to back down after considering the possibility of a nuclear catastrophe.

Dixit and Nalebuff, in their works Thinking Strategically and The Art of Strategy, examine this historical event and explore the idea of strategic tightrope walking. This tactic is based on deliberately creating a risk that is sufficiently intolerable for the opponent that they are induced to eliminate it, thereby complying with our wishes. This is a technique that requires skilful use of credibility and proper risk management, as one might expect, but it can also be a very effective strategy for achieving predetermined goals. 

The classic example of strategic tightrope walking has been the Cold War and the use of nuclear deterrence. To prevent the Soviets from launching a conventional attack against Europe or the United States, it is necessary to expose them to the possibility that the conflict will escalate and a nuclear exchange will occur. The Soviets would proceed more slowly if the risk of pursuing that course increased. The United States and the Soviets would likely offer mutual concessions, despite running a greater risk of escalation.

The increased probability of a conventional conflict escalating should be offset by the decreased probability of initiating a war. If Khrushchev considered the level of risk unacceptable, the use of strategic tightrope walking will be successful. It would have allowed Kennedy to choose a larger threat that is large enough to be effective but small enough to be credible.

Like any other strategic move, its aim is to alter the opponent’s expectations to influence their actions. Therefore, strategic tightrope walking is a type of qualified threat. To use this tactic successfully, it is necessary to understand its distinctive characteristics.

Dixit and Nalebuff ask: First, why not threaten the opponent with the certainty of a terrible outcome, rather than the lesser risk of it happening? Second, how do you determine whether the risk will materialise? Third, what is the appropriate level of risk?

Strategic tightrope walking is the tactic of pushing your opponent to the brink of catastrophe to make them back down. This is an extreme application of the Silver Rule: do not do unto others what you would not have them do unto you. The individual eventually gives in to your tactic because they do not want to cause an avoidable disaster.

This strategic tightrope walking bears a resemblance to the chicken game dilemma. In game theory, the chicken game dilemma arises when two drivers are travelling in opposite directions at high speed towards the same point on the same road. Each driver is aware of their car’s reaction time and turning radius, which are assumed to be identical for both competitors. Each must decide when the time comes to swerve. This decision must be made without considering the other driver’s decision, as it is irrevocable. One opponent’s quick decision cannot affect the other.

This chicken dilemma is based on a scenario where there is increasing risk and an outcome that is interdependent on the other player’s decisions in relation to one’s own decisions.  This increasing risk, if both players fail to change their attitude, could lead, in the worst-case scenario, to a collision between the two vehicles, with fatal consequences.

It seems that strategic tightrope walking is an initially more cautious approach, which considers all possible scenarios and selects the one that presents the least risk. In chicken games, with the same game structure, the outcome is uncertain and depends on how the other driver acts compared to the driver in question. The crucial question is: who is the first to give way?

Let us imagine a fragile seven-party agreement, with disparate and even conflicting interests and idiosyncrasies, with another negotiator who holds a position of power—which depends on maintaining this fragile agreement. Here, strategic tightrope walking—and the parties’ risk management—would be combined with the salami tactic. With the threat that the pact will end, one party obtains a concession, with each slice it cuts, no matter how small, having the potential to be the last straw. The key to making this type of threat credible is that none of the parties has exact knowledge of where the dividing line lies.

Strategic tightrope walking involves not only creating a risk, but also carefully keeping the level of that risk under control. Reaching this conclusion does not mean that one must accept the situation and accept the risk of nuclear war. To reduce the risk, it is necessary to address the problem at a more fundamental level, that is, to change the game.

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Strategic funambulism

US President John F. Kennedy declared a naval blockade of Cuba on 22 October 1962 after a week of internal deliberations. The Soviet Union could have reacted to this action, raising the risk of a nuclear conflict to critical levels, which Kennedy considered this to have a one-third to one-half chance of occurring. After days of tension, declarations, and clandestine talks, Khrushchev opted to avoid direct confrontation by withdrawing the missiles from Cuba and returning them to the Soviet Union. This was in exchange for a US promise to withdraw its missiles from Turkey in the near future. Khrushchev opted to withdraw after considering the possibility of a nuclear catastrophe.

Dixit and Nalebuff, in their works Thinking Strategically and The Art of Strategy examine this historical event and the idea of strategic funambulism. This tactic is based on deliberately creating a sufficiently intolerable risk to the opponent to induce him to eliminate it by yielding. This technique requires skilful use of credibility and proper risk management, but it can also be a very effective strategy for achieving pre-set goals. 

The classic example of strategic funambulism has been the Cold War and the use of nuclear deterrence. To prevent the Soviet Union from initiating a conventional attack on Europe or the United States, it is necessary to expose it to the possibility of an escalating conflict and a nuclear exchange. The Soviet Union would move more slowly if the risk of pursuing such a course increased. The United States and the Soviet Union would likely offer each other concessions despite the increased risk.

The increased likelihood of a conventional conflict escalating should be exactly offset by the decreased likelihood of initiating a conventional conflict. If Khrushchev had considered the level of risk unacceptable, the use of strategic funambulism would have been successful. It would have allowed Kennedy to choose a more significant threat that was big enough to be effective but small enough to be credible.

Like any other strategic move, it aims to alter the opponent’s expectations to influence his actions. In reality, strategic funambulism is a type of qualified threat. To use this tactic successfully, it is necessary to understand its distinctive characteristics.

Dixit and Nalebuff ask: First, why not threaten the opponent with the certainty of a terrible outcome rather than with the slightest risk of it happening? Second, how does one determine whether the risk materialised? Third, what is the appropriate level of risk?

Strategic funambulism is the tactic of pushing an adversary to the brink of catastrophe to push him back. This is an extreme application of the Silver Rule: do unto others as you would have them do unto you. The subject finally gives in to his tactic because he does not want to provoke a disaster that is in his hands.

This strategic funambulism has a familiar ring to the chicken dilemma. In game theory, the chicken dilemma arises with two drivers on the same road, heading in opposite directions at high speed towards the same point. Each driver knows his car’s reaction time and turning radius, which are assumed to be identical for the two competitors. Each must decide when it is time to back down. This decision must be made without regard to the other driver’s decision, as it is irrevocable. The quick decision of one opponent cannot affect the other.

This chicken dilemma is based on a framework with increasing risk and an interdependent outcome of the other player’s decisions concerning one’s own choices. If both fail to change their attitude, this rising risk can lead, in the worst case scenario, to a collision of the two vehicles, with fatal consequences.

Strategic funambulism seems to be an initially more cautious approach, which considers all possible scenarios and selects the one with the least risk. In games of chicken, the outcome is uncertain and depends on how the other driver performs compared to the driver in question. The crucial question is: who is the first to back down?

Imagine a fragile agreement of 7 parties, with disparate and even conflicting interests and idiosyncrasies, with another negotiator holding a position of power – which depends on maintaining this fragile agreement. This would combine strategic funambulism – and the parties’ risk management – with the salami technique. With the threat that the agreement will end, one side obtains a concession, with each slice it cuts, no matter how small, having the capacity to be the last drop of water. The key to making this kind of threat credible is that neither side knows exactly where the dividing line lies.

Strategic funambulism involves not only creating a risk but also carefully keeping the level of that risk under control. Reaching this conclusion does not imply accepting the situation and accepting the risk of nuclear war. To reduce the risk, it is necessary to address the problem at a more elementary level, i.e., change the game.