A Game-Free Microfoundation of Mutual Optimism

One of the most widely accepted explanations for why wars occur despite its 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...