Risk Propensity and Conflict Behavior

Advisors active in conflict management need to consider what drives the conflict behavior of the parties involved in a dispute. Conflict behavior is, to a certain extent, motivated by rational strategic interests. But the escalation of a conflict also results from socio-psychological factors, such as attribution effects, as well as cognitive biases, such as framing effects. These non-rational drivers of conflict behavior are particularly dangerous because they increase the risk propensity of the antagonists. This article argues that psychological factors inducing risk-taking behavior are more virulent in conflicts of status as compared to conflicts of interest.*

Problem-solving in conflicts of interest

It is a natural and universal phenomenon that people who have conflicting interests start a dispute. Under normal circumstances, when rational considerations rule, all issues can be resolved by means of negotiation. The only condition is some common ground or interdependence of the parties, which basically implies that they rely on each other in order to solve the problems concerned; the parties do not have to be equally powerful, but neither of them can simply walk away, or impose its will without risking a fight which could entail unwelcome costs.

If the relationship between the parties is strained and talks are going nowhere, a third party may be consensually invited to help in finding a fair resolution. Building on mediation research and negotiation analysis a third party can use a wide range of sophisticated communication and decision-making techniques in order to create value and improve the outcome in such a way that each party will find the overall terms of settlement at least acceptable. (In a separate article, Global Risk Affairs will feature the methodology of mediation and negotiation analysis).

Conflicts of status and rank-order fights

In contrast to negotiated solutions, why do some conflicts escalate to the point, where the parties insult and threaten each other, apply means of coercion, or actually do get into a fight, resorting to violence and even armed force?

To answer that question, it is necessary to distinguish between the aforementioned conflicts of interest and the much more severe conflicts of status. In a status conflict, the parties have different interests too, but these issues are superimposed by a fierce competition for the dominating role within the parties’ relationship. In the political arena, which is even less regulated than the economic market-place, status conflicts are also about who determines the ‘rules of game’.

Since gaining or loosing in status is a matter of relative comparison, status conflicts are essentially rank-order conflicts. Rank-order conflicts occur in hierarchical environments and are caused by relative status uncertainty and status shifts. If the ranking of the parties is ambiguous, due to a divergent assessment of the particular power resources for example, they might fight in order to establish who will dominate and who will have to defer. If a hierarchy already exists, the dominating party may encounter fierce resistance by the party that is no longer willing to defer. On the other hand, a former subordinate party might eventually challenge the dominant party, seeking to reverse the roles.

The various types of rank-order conflicts can be observed in all areas and on different levels. On the geopolitical level, for instance, there are signals that the conflict of interest between the United States and China is evolving into a rank-order conflict. The nuclear crisis with Iran is as much about defiance against U.S. domination and acquiring the status of a nuclear power, as it is about the issue of nuclear non-proliferation. The escalation patterns of armed ethnic conflicts and the notorious problems of ending them, constantly demonstrate the severity of status and rank-order fights. Furthermore, in those countries in North Africa and the Middle East where the current regime changes have taken a violent path, status issues have played a more significant role than in those countries where the revolutions proceeded without the use of armed force.

What about status conflicts in the rational realm of business? Even though less violent than respective political conflicts, collective bargaining between employers associations and trade unions sometimes escalates to the point of confrontational strikes and lockouts. Even synergetic mergers of corporations can fail or simply turn sour due to unsolved leadership issues between the chief executives on either side. As indicated in the previous article about political risk analysis, governmental regulation which has a negative effect on foreign direct investments is primarily about demonstrating dominance, thereby also pleasing the domestic audience.

Psychological drivers of risk-taking conflict behavior

Status or rank-order conflicts do have a pronounced potential for escalation because both parties will likely develop increased risk propensity. Apart from rational motivations, such as showing resolve and seeking a reputation of strength toward one’s own clientele in order to secure support, specific psychological factors often contribute to a mutual risk-taking attitude too.

Socio-psychological attribution effects can induce a momentum of hostility into the relationship with the opponent who is thus regarded as the enemy. Verbal offenses and humiliation, threats and actions of coercion, imply the perception that the other is aggressively trying to do harm to oneself. The perceived enemy is assigned the attribute of being malicious by nature, whereas the self-image is that of being the victim merely acting in self-defense. The problem is that the other party might think the same in reverse, which in effect leads to a mutually re-enforcing attribution error on both parts. Once real damage has been done, or lives are lost in violent encounters, it becomes extremely difficult to correct the attribution error. As a consequence, each party is more willing to accept a fight for survival in face of an allegedly evil enemy.

Furthermore, cognitive loss aversion induces risk-prone behavior. According to robust evidence based on the Prospect Theory (Kahneman/Tversky), people usually do not represent the possible outcomes of a ‘risky’ decision as an absolute cost-benefit calculation – as assumed by Rational Choice Theory. Rather, they view the prospects of the decision as either gains or losses relative to a specific reference point. Moreover, losses do loom as being larger than gains of the same size. Even though Prospect Theory was originally developed in the scientific context of cognitive psychology and behavioral finance, it is also relevant for explaining risk-taking conflict behavior.

The reference point not only separates the domain of gains from the domain of losses. The reference point is also not fixed, but might shift according to the subjective framing of the decision situation. Framing means, for instance, that you see a glass that is 50 per cent filled with water as being either half full or half empty.

Therefore, loss perception is a variable dependent on the framing of any given situation. If a conflict is framed as a rank-order conflict, the aversion against a status loss or a status deficit can be so intense that extraordinary risks are taken to prevent the loss or to compensate the subjective deficit. Since rank-order conflicts involve interdependent status issues, parties prone to escalation must be reckoned with at any time.

* The article is based on the author’s book about “Risikoeinstellungen in internationalen Konflikten” (Risk Attitudes in International Conflicts, 2009).