Cycles of Conflict: An Economic Model

Abstract

We propose a model of cycles of conflict and distrust. Overlapping generations of agents from two groups sequentially play coordination games under incomplete information about whether the other side consists of bad types who always take bad actions. Good actions may be misperceived as bad and information about past actions is limited. Conflict spirals start as a result of misperceptions but also contain the seeds of their own dissolution: Bayesian agents eventually conclude that the spiral likely started by mistake, and is thus uninformative of the opposing group's type. The agents then experiment with a good action, restarting the cycle.