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Contribution to Collected Edition

A game-free microfoundation of mutual optimism


Serena,  Marco
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Serena, M. (2020). A game-free microfoundation of mutual optimism. In G. Gratton, & G. Zudenkova (Eds.), Political games: strategy, persuasion, and learning (pp. 57-70). Basel: MDPI.

Cite as: https://hdl.handle.net/21.11116/0000-0005-B153-5
One of the most widely accepted explanations for why wars occur despite ist Pareto-suboptimality is mutual optimism: if both sides expect to gain a lot by fighting, war becomes inevitable. The literature on mutual optimism typically assumes mutually optimistic beliefs and shows that, under such an assumption, war may occur despite its Pareto-suboptimality. In a war–peace model, we show that, if players neglect the correlation between other players’ actions and their types—a well-established concept in economics—then players’ expected payoffs from war increase relative to conventional informational sophistication predictions, hence providing a microfoundation of mutual optimism.