“Whereas a missile comes with a return address, a computer virus generally does not.”
–William Lynn, U.S. Deputy Secretary of Defense, 2010The ability to maintain peace through deterrence rests on a simple principle: the credible threat of sufficiently strong retaliation in response to an attack prevents forward-looking adversaries from initiating hostilities in the first place (Myerson Reference Myerson2009; Schelling Reference Schelling1960; Snyder Reference Snyder1961). The traditional concern about the effectiveness of deterrence is that retaliation might not be credible. But technological changes, especially the rise of cyberwarfare, have brought new considerations to the fore. Central among these is the attribution problem: the potential difficulty in determining who is responsible for an attack or even if an attack occurred at all.Footnote 1
Attribution problems weaken deterrence: multiplying a penalty by the probability of correct attribution reduces the expected penalty (Clark and Landau Reference Clarke2010; Edwards et al. Reference Edwards, Furnas, Forrest and Axelrod2017; Goldsmith Reference Goldsmith2013; Kello Reference Kello2017; Lindsay Reference Lindsay2015; Nye Reference Nye2011). But the implications of imperfect attribution for deterrence are much richer than this, and the precise effects—as well as how a state can optimally deter attacks under imperfect attribution—have yet to be studied. As General Michael Hayden (Reference Hayden2011), former director of the National Security Agency, put it in testimony before Congress, “[c]asually applying well-known concepts from physical space like deterrence, where attribution is assumed, to cyberspace, where attribution is frequently the problem, is a recipe for failure.”
The current paper takes up Hayden’s challenge by offering a new model of deterrence that lets us think rigorously about some key issues that arise when attribution is imperfect. In our model, there are multiple potential attackers and one defender. An attacker gets an opportunity to strike the defender. The defender observes a noisy signal, which probabilistically indicates whether an attack occurred and who attacked. Attribution problems entail three kinds of potential mistakes. There is a false alarm if the defender perceives an attack when none occurred. There is detection failure if the defender fails to detect an attack that did occur. And there is misidentification if the defender assigns responsibility for an attack to the wrong attacker. We assume the defender suffers a cost if she is attacked. She receives a private benefit that defrays some of this cost if she retaliates against the right attacker, but she suffers an additional cost if she retaliates against the wrong one. Each attacker gets a private benefit from attacking but suffers a cost if the defender retaliates against him. There are no direct externalities among attackers—one attacker’s payoff does not depend on whether another attacker attacks or faces retaliation.
Our model highlights a key strategic force that has not previously been appreciated in the theoretical or policy literatures: attribution problems generate an endogenous strategic complementarity among potential attackers. This effect makes deterrence under imperfect attribution inherently global and interconnected, rather than bilateral. To see the idea, suppose attacker $$ i $$ becomes more aggressive. Then, whenever the defender detects an attack, her belief that attacker $$ i $$ was responsible increases, and her belief that any other potential attacker was responsible decreases. This makes the defender more likely to retaliate against attacker $$ i $$ and less likely to retaliate against all other attackers. But this in turn leads the other attackers to become more aggressive. Thus, a rise in the aggressiveness of a single attacker increases the probability with which every attacker attacks in equilibrium—in effect, all other attackers can “hide behind” the aggressiveness of attacker $$ i $$. However, despite this complementarity, our model has a unique equilibrium, which substantially simplifies the analysis.
In addition to classifying the three different types of attribution errors and highlighting this endogenous complementarity, we use the model to explore a host of issues relevant for discussions of cyberdeterrence. First, we ask whether improving attribution always improves deterrence, showing that it need not. Second, we ask whether security is enhanced or harmed by a policy allowing increased retaliatory flexibility—for instance, by allowing non-cyber responses to cyberattacks. Third, we explore the strategy of “false-flag” operations, asking which actors are likely to be targeted for mimicry in cyberspace. Finally, we characterize the optimal deterrence policy when the defender can commit to a retaliatory strategy in advance, showing how it diverges from both optimal deterrence in conventional conflict and from suggestions in the contemporary policy discussion.
Motivating Examples
Two key features of our model are the endogenous strategic complementarity among attackers and the decomposition of attribution problems into false alarms, detection failures, and misidentification. Each of these features of the model is reflected in real-world cyber incidents.
The strategic complementarity mechanism—“less suspect” attackers’ desire to hide their attacks behind “more suspect” attackers—is reflected in many incidents. It is perhaps most clearly evident in false-flag operations. According to American authorities, the Russian military agency GRU executed a cyberattack during the opening ceremony of the 2018 Pyeongchang Winter Olympics. The GRU used North Korean IP addresses to deflect suspicion onto North Korea (Nakashima Reference Nakashima2018), which was already highly suspect because of its hack of Sony Pictures and a variety of other cyber operations. Similarly, the National Security Agency reports that Russian hackers used Iranian tools to infiltrate organizations in the Middle East in an effort to hide their origin, exploiting Iran’s reputation as a significant cyber aggressor (National Cyber Security Center 2019). These examples illustrate our mechanism: the high level of cyber activity of North Korea and Iran reduced Russia’s costs from cyberattacks, which contributed to making Russia more aggressive.
The Stuxnet worm was used to disrupt the Iranian nuclear facility at Natanz by causing centrifuges to malfunction over the course of more than a year. During the attack, the Iranians believed the problems with their centrifuges were the result of faulty parts, engineering incompetence, or domestic sabotage (Singer and Friedman Reference Singer and Friedman2014). Stuxnet was eventually uncovered not by the Iranians but by European cybersecurity researchers who found a worm that was infecting computers all over the world but was configured to do damage only in very specific circumstances tailored to the facility at Natanz. This was a startling case of detection failure.
In 1998, the United States Department of Defense discovered attacks exploiting operating system vulnerabilities to retrieve sensitive data from military computer networks. The US was preparing for possible military action in support of UN weapons inspections in Iraq, and the cyberattacks emanated from Abu Dhabi. A Department of Defense investigation, called Solar Sunrise, initially attributed the attacks to Iraq, and the US went so far as to send a strike team to Abu Dhabi. Ultimately, the attacks turned out to be the work of three teenagers in San Francisco and Israel (Adams Reference Adams2001; Kaplan Reference Kaplan2016). Conversely, the hacking of the Democratic National Committee servers during the 2016 presidential election was initially attributed to a lone Romanian hacker who went by the moniker Guccifer 2.0. Later, US authorities determined the hack was perpetrated by Russian security agencies trying to cover their tracks by pretending to be Guccifer 2.0 (ThreatConnect 2016). These are cases of misidentification.
Finally, the Democratic National Committee notified the FBI that it had detected what appeared to be an attempt by Russian hackers to infiltrate its voter database in the run-up to the 2018 US midterm elections, but the “attack” turned out to be the work of hackers hired by the Michigan Democratic Party to simulate a Russian incursion (Sullivan, Weiland, and Conger Reference Sullivan, Weiland and Conger2018). This perceived attack was thus a false alarm.
Relationship to the Policy and Theoretical Literatures
Our model offers new insights that are relevant to ongoing policy debates surrounding cyberdeterrence as well as to several strands of theoretical research.
Cyberwarfare Policy Debates
Two advances relative to current policy debates relate directly to strategic complementarity.
First, the policy debate has tended to proceed in bilateral terms. In his “mosaic model” of cyberdeterrence, Buchanan (Reference Buchanan2014, 133) breaks from traditional deterrence theory by providing a typology of cyberattacks and appropriate responses. But he nonetheless analyzes deterrence adversary-by-adversary: “what deters the Chinese might not deter the Russians, and vice versa.” Likewise, while the 2018 U.S. National Defense Strategy notes the emergence of threats from rogue states and non-state actors, it nonetheless proposes a “focus … on the States that can pose strategic threats to U.S. prosperity and security, particularly China and Russia,” (Department of Defense 2018). By contrast, our analysis suggests bilateral cyberdeterrence is ineffective: if the US focuses only on China and Russia, this encourages belligerence by other actors, which in turn makes the Chinese and Russians less suspect and hence creates new opportunities for them as well.
Second, the literature has typically conceptualized attribution as an almost exclusively technical problem. Rid and Buchanan (Reference Rid and Buchanan2015, 7) call for a more nuanced approach in which attribution is understood to be both probabilistic and strategic—“attribution is what states make of it.” But even they focus on the technological inputs to the attribution process, leaving strategy aside. By contrast, our model highlights how attribution is fundamentally both technical and strategic: the probability that the (Bayesian) defender attributes an attack to a particular adversary depends on both technological inputs (modeled as the defender’s signals) and the underlying strategic environment (equilibrium conjectures about different adversaries’ behavior). The latter input is what drives strategic complementarity, and it is absent from existing discussions.
Our results also speak to a range of policy questions. If cyberattacks could be perfectly detected, then deterrence in cyberspace would be no more difficult than in other domains. As such, a natural intuition is that improving attribution improves deterrence. According to the Department of Defense’s (2015) official Cyber Strategy,
attribution is a fundamental part of an effective cyber deterrence strategy … DoD and the intelligence community have invested significantly in all source collection, analysis, and dissemination capabilities, all of which reduce the anonymity of state and non-state actor activity in cyberspace. (Department of Defense 2015)
And commenting on U.S. investments in improved attribution, then Secretary of Defense Leon Panetta warned, “Potential aggressors should be aware that the United States has the capacity to locate them and to hold them accountable for their actions that may try to harm America” (Panetta Reference Panetta2012).
These proclamations do not distinguish between different types of attribution errors. Our analysis will show that whether improvements in attribution unambiguously improve deterrence or can instead backfire depends crucially on our classification of attribution problems.
In our applications discussion, we first analyze when and whether non-cyber weapons should be used to respond to a cyberattack (Hathaway et al. Reference Hathaway, Crootof, Levitz, Nix, Nowlan, Perdue and Spiegel2012; Libicki Reference Libicki2009; Lin Reference Lin2012). As early as 2011, the Obama administration declared, “the United States will respond to hostile acts in cyberspace as we would to any other threat to our country… . We reserve the right to use all necessary means—diplomatic, informational, military, and economic” (United States 2011). In 2018, the Trump administration extended this logic and declared that the United States might respond to a cyberattack with nuclear weapons (United States 2018). In 2019, Israel became (apparently) the first state to respond to a cyber threat with direct military force, bombing a facility that allegedly housed Hamas hackers.Footnote 2 We show that the defender always benefits from gaining access to a new retaliatory weapon that is more destructive than all previously feasible means of retaliation; in contrast, gaining access to a less destructive weapon can sometimes undermine deterrence.
We then consider the possibility of “false-flag” operations. These let states dodge accountability for cyberattacks either by mimicking another state or by pretending to be the victim of mimicry, exacerbating the attribution problem (Bartholomew and Guerrero-Saade Reference Bartholomew and Guerrero-Saade2016; Singer and Friedman Reference Singer and Friedman2014). We extend our model to allow one attacker to attempt to mimic another. We find that more aggressive attackers are more likely to be mimicked, as are attackers whose attacks are easier to detect and attribute.
Finally, policy discussion increasingly calls for states to clearly articulate their cyberdeterrence policies (Glaser Reference Glaser2011) because it is believed that “[t]he lack of decisive and clearly articulated consequences to cyberattacks against our country has served as an open invitation to foreign adversaries and malicious cyber actors to continue attacking the United States.”Footnote 3 Building on intuitions from traditional deterrence theory, recent arguments call for a cyber-retaliation doctrine that is more aggressive across the board (e.g., Clarke and Knake Reference Clarke2010; Hennessy Reference Hennessy2017). We characterize the optimal deterrence policy when the defender can commit to a retaliatory strategy and show that the optimal doctrine is more nuanced: while the defender should retaliate more aggressively after some types of attacks, retaliation should not necessarily increase after every attack. In particular, it may be optimal to retaliate less aggressively following attacks whose attribution is particularly ambiguous. In addition, notwithstanding the Department of Defense’s call to focus on Russia and China, the optimal cyber doctrine does not call for increased aggressiveness against a defender’s most aggressive adversaries—rather, it calls for increased aggressiveness against the most deterrable adversaries, where an adversary is deterrable if its attacks are particularly easy to attribute (e.g., it is technologically limited, or other countries are not trying to mimic it) or it is particularly responsive to a marginal increase in retaliation (e.g., due to its own cyber vulnerability or domestic political considerations).
Alternative Applications and Theoretical Literature
While attribution problems are endemic to cyberwarfare, they also arise in many other environments where deterrence matters. Even in conventional warfare, it is sometimes difficult to determine who initiated a given attack.Footnote 4 The problem is amplified in counterinsurgency, where often multiple competing factions could be responsible for an attack (Berman, Shapiro, and Felter Reference Berman2011; Shaver and Shapiro Reference Shaver and Shapiro2016; Trager and Zagorcheva Reference Trager and Zagorcheva2006). Turning to non-conflict environments, it is possible to measure pollution, but it may be difficult to assign responsibility to one potential polluter over another (Segerson Reference Segerson1988; Weissing and Ostrom Reference Weissing, Ostrom and Selten1991). Similar issues arise in other areas of law and economics (Lando Reference Lando2006; Png Reference Png1986; Shavell Reference Shavell1985; Silva Reference Silva2016).
A large literature explores aspects of deterrence other than the attribution problem. Schelling (Reference Schelling1960) explained the logic of deterrence and the importance of commitment. Jervis (Reference Jervis1978) elucidated the “security dilemma,” which applies to cyberwarfare as much as conventional warfare (Buchanan Reference Buchanan2017). The security dilemma has been formalized using the idea that arms might be strategic complements (Baliga and Sjöström Reference Baliga and Sjöström2004; Chassang and Padró i Miquel Reference Chassang and Miquel2010; Kydd Reference Kydd1997). For example, Chassang and Padró i Miquel (Reference Chassang and Miquel2010) show that, in a coordination game, arms acquisition can increase preemptive incentives to go to war faster than it strengthens deterrence. Acemoglu and Wolitzky (Reference Acemoglu and Wolitzky2014) incorporate an attribution problem into a dynamic coordination game with overlapping generations. A player does not know whether an ongoing conflict was started by the other “side” or by a past member of his own side. This leads to cycles of conflict as players occasionally experiment with peaceful actions to see if the other side plays along. Another literature explores how the threat of retaliation can be made credible, including the role played by both domestic politics and reputation (see, for example, Di Lonardo and Tyson Reference Di Lonardo2018; Fearon Reference Fearon1997; Gurantz and Hirsch Reference Gurantz2017; Powell Reference Powell1990; Smith Reference Smith1998). We abstract from these themes in order to focus on the implications of attribution problems for deterrence with multiple attackers.
Our model also relates to the literature on inspection games. In such a game, an inspectee may or may not act legally, and an inspector decides whether to call an alarm as a function of a signal of the inspectee’s action (see Avenhaus, von Stengel, and Zamir Reference Rudolf, von Stengel, Zamir, Aumann and Hart2002 for a survey). This literature usually allows only one inspectee, though some of our comparative statics results also apply to that case. In particular, we show that a Blackwell improvement in information can make the defender worse off (without commitment)—this appears to be a novel result for inspection games. Some inspection game models do allow multiple inspectees, but these models study issues other than attribution, such as the allocation of scarce detection resources across sites (Avenhaus, von Stengel, and Zamir Reference Rudolf, von Stengel, Zamir, Aumann and Hart2002; Hohzaki Reference Hohzaki2007).
Inspection games appear in economics in the guise of “auditing games,” where a principal tries to catch agents who “cheat.” These games have many interesting features. For example, the principal might commit to random audits to save on auditing costs (Mookherjee and Png Reference Mookherjee and Png1989). The principal also faces a commitment problem, as she may not have an incentive to monitor the agent ex post (Graetz, Reinganum, and Wilde Reference Graetz1986; Khalil Reference Khalil1997). However, the attribution problem we study does not arise in these models.
Interpreting the attackers in our model as criminal suspects and the principal as a judge who seeks to punish the guilty but not the innocent, our model relates to law and economics. The traditional approach to deterrence in this area assumes full commitment and ex post indifference between convicting innocent suspects and guilty ones (Polinsky and Shavell Reference Polinsky and Shavell2000). Moreover, it does not fully model the strategic interaction among multiple possible offenders, taking into account that the equilibrium behavior of one offender affects how likely the judge is to assign guilt to other attackers.Footnote 5
There is also a literature on “crime waves” that models crime as a game of strategic complements among criminals: the more crimes are committed, the more law enforcement resources are strained, and the greater the incentive to commit additional crimes (Bar-Gill and Harel Reference Bar-Gill and Harel2001; Bassetto and Phelan Reference Bassetto and Phelan2008; Bond and Hagerty Reference Bond and Hagerty2010; Ferrer Reference Ferrer2010; Freeman, Grogger, and Sonstelie Reference Freeman, Grogger and Sonstelie1996; Glaeser, Sacerdote, and Scheinkman Reference Glaeser, Sacerdote and Scheinkman1996; Sah Reference Sah1991; Schrag and Scotchmer Reference Schrag and Scotchmer1997). This complementarity is related to the one in our model, if we interpret the defender’s supply of “suspicion” as a fixed resource: the more one attacker attacks, the more suspect he becomes, and the less suspicion is left for other attackers. However, the crime-waves literature emphasizes the possibility of multiple equilibria with different levels of crime, while our model has a unique equilibrium. This is because suspicion is a special kind of resource, which responds to the relative attack probabilities of different attackers rather than the absolute attack probabilities: if all attackers double their attack probabilities, they remain equally suspicious (in fact more suspicious because the relative probability of a false alarm has decreased) and thus face just as much retaliation. Our analysis is thus quite different from this literature, despite sharing the common theme of strategic complementarity.
Finally, repeated games with imperfect monitoring model multilateral moral hazard without commitment (Abreu, Pearce, and Stacchetti Reference Abreu, Pearce and Stacchetti1990; Green and Porter Reference Green1984; Radner Reference Radner1986). Our model collapses the infinite horizon into a principal who plays a best response. This approach might also be a useful shortcut in other contexts.Footnote 6
A Model of Deterrence with Imperfect Attribution
There are $$ n+1 $$ players: $$ n $$ attackers and one defender. They play a two-stage game:
1. With probability $$ \gamma\ \in\ \left(0,1\right] $$, one of the $$ n $$ attackers is randomly selected. That attacker chooses whether to attack or not. With probability $$ 1-\gamma $$, no one has an opportunity to attack.
2. The defender observes a signal $$ s $$ drawn from a finite set $$ S $$. If attacker $$ i $$ attacked in stage 1, the probability of signal $$ s $$ is $$ {\pi}_i^s $$. If no one attacked in stage 1 (i.e., if some attacker had an opportunity to attack but chose not to, or if no one had an opportunity to attack), the probability of signal $$ s $$ is $$ {\pi}_0^s $$. The defender then chooses whether to retaliate against one or more of the attackers.
The attackers differ in their aggressiveness. An attacker with aggressiveness $$ {x}_i\ \in\ \mathbb{R} $$ receives a payoff of $$ {x}_i $$ if he attacks. Each attacker also receives an additional payoff of $$ -1 $$ if he is retaliated against. Each attacker $$ i $$’s aggressiveness $$ {x}_i $$ is his private information and is drawn from a continuous distribution $$ {F}_i $$ with positive density $$ {f}_i $$ on support $$ \left[{\underset{\_}{x}}_i,{\bar{x}}_i\right] $$.
The defender receives a payoff of $$ -K $$ if she is attacked. In addition, for each attacker $$ i $$, if she retaliates against $$ i $$ she receives an additional payoff of $$ {y}_i\in {\mathbb{R}}_{+} $$ if $$ i $$ attacked and receives an additional payoff of $$ {y}_i-1 $$ if $$ i $$ did not attack. The vector $$ y={\left({y}_i\right)}_{i=1}^n $$ is the defender’s private information and is drawn from a continuous distribution $$ G $$ whose marginals $$ {\left({G}_i\right)}_{i=1}^n $$ have positive densities $$ {g}_i $$ on support $$ \left[{\underset{\_}{y}}_i,{\bar{y}}_i\right] $$. We assume that $$ {G}_i(K)=1 $$ for all $$ i $$. This implies that the defender would rather not be attacked than be attacked and successfully retaliate.
In general, a strategy for attacker $$ i\in\ I:= \left\{1,..,n\right\} $$ is a mapping from his aggressiveness $$ {x}_i $$ to his probability of attacking when given the opportunity, $$ {p}_i\left({x}_i\right)\in \left[0,1\right] $$. A strategy for the defender is a mapping from $$ y={\left({y}_i\right)}_{i\in I} $$ and the signal $$ s $$ to the probability with which she retaliates against each attacker, $$ {r}^s(y)={\left({r}_i^s(y)\right)}_{i\in I}\in {\left[0,1\right]}^n $$.Footnote 7 However, it is obvious that every best response for both the attackers and the defender takes a cutoff form, where attacker $$ i $$ attacks if and only if $$ {x}_i $$ exceeds a cutoff $$ {x}_i^{\ast}\in\ \left[0,1\right] $$, and the defender retaliates against attacker $$ i $$ after signal $$ s $$ if and only if $$ {y}_i $$ exceeds a cutoff $$ {y}_i^{s\ast }\ \in\ \left[0,1\right] $$.Footnote 8 We can therefore summarize a strategy profile as a vector of cutoffs $$ \left({x}^{\ast },{y}^{\ast}\right)\ \in\ {\left[0,1\right]}^n\times {\left[0,1\right]}^{n\left|S\right|} $$. Equivalently, we can summarize a strategy profile as a vector of attack probabilities $$ p={\left({p}_i\right)}_{i\in I}\ \in\ {\left[0,1\right]}^n $$ for the attackers and a vector of retaliation probabilities $$ r={\left({r}_i^s\right)}_{i\in I,s\in S}\ \in\ {\left[0,1\right]}^{n\left|S\right|} $$ for the defender, as for attacker $$ i $$ choosing attack probability $$ {p}_i $$ is equivalent to choosing cutoff $$ {x}_i^{\ast }={F}_i^{-1}\left(1-{p}_i\right) $$, and for the defender choosing retaliation probability $$ {r}_i^s $$ is equivalent to choosing cutoff $$ {y}_i^{s\ast }={G}_i^{-1}\left(1-{r}_i^s\right) $$.
The solution concept is sequential equilibrium (equilibrium henceforth).
We assume that $$ S $$ contains a “null signal,”$$ s=0 $$, which probabilistically indicates that no attack has occurred. The interpretation is that $$ s=0 $$ corresponds to the defender perceiving “business as usual.” We make the following two assumptions:
1. For each attacker $$ i $$, the probability of each non-null signal $$ s\ne 0 $$ is greater when $$ i $$ attacks than when no one attacks: for all $$ i\in I $$ and all $$ s\ne 0 $$, $$ {\pi}_i^s\ \ge\ {\pi}_0^s $$. Note that this implies $$ {\pi}_i^0\ \le\ {\pi}_0^0 $$ for all $$ i\in I $$, as the components of $$ {\left({\pi}_i^s\right)}_{s\in S} $$ and $$ {\left({\pi}_0^s\right)}_{s\in S} $$ must sum to 1.
2. It is not optimal for the defender to retaliate after receiving the null signal: for all $$ i\in I, $$
(1)$$ {G}_i\left(\frac{\left(1-\gamma \right)n{\pi}_0^0+\gamma \sum_{j\ne i}\ {\pi}_j^0}{\left(1-\gamma \right)n{\pi}_0^0+\gamma \sum_j\ {\pi}_j^0}\right)=1.\kern1.00em $$
Note that this implies $$ {y}_i<1 $$ with probability 1, so the defender never benefits from retaliating against an innocent attacker.
Finally, we assume that either (i) $$ \gamma <1 $$ and $$ {\pi}_0^s>0 $$ for all $$ s\ \in\ S $$, or (ii) $$ {F}_i(1)<1 $$ for all $$ i\ \in\ I $$ and $$ S={\bigcup}_{i\in I,s\in S}\ \mathrm{supp}\ {\pi}_i^s\ \supseteq\ \mathrm{supp}\ {\pi}_0^s $$. Either assumption guarantees that every signal $$ s\in S $$ arises with positive probability in equilibrium (and hence the defender’s beliefs are determined by Bayes’ rule), which is the only role of this assumption.
Comments on Interpretation of the Model
We offer a few comments on interpretation.
First, the presence of the null signal let us define three types of attribution failures. A false alarm occurs if a non-null signal $$ s\ne 0 $$ arises when no one attacked. A detection failure occurs if the null signal $$ s=0 $$ arises when an attack took place. And there is scope for misidentification if a non-null signal $$ s\ne 0 $$ where $$ {\pi}_i^s>0 $$ arises when some attacker $$ j\ne i $$ attacked. Note that “no attack” can occur either because no attacker had an opportunity to attack or because some attacker did have an opportunity to attack but chose not to. We allow the former possibility (i.e., $$ \gamma <1 $$) both for realism and to accommodate the case where there is only a single attacker ($$ n=1 $$).Footnote 9
The presence of the null signal is also important for the strategic complementarity at the heart of our model. By Assumption 1, when attacker $$ i $$ becomes more aggressive, he becomes more “suspect” after every non-null signal and all other attackers become less suspect. By Assumption 2, this increases retaliation against attacker $$ i $$ and decreases retaliation against all other attackers, as retaliation occurs only following non-null signals.
Second, $$ {y}_i\ \ge\ 0 $$ implies that retaliation would be credible for the defender if she knew who attacked. We thus abstract from the “search for credibility” in the traditional deterrence literature (Powell Reference Powell1990; Schelling Reference Schelling1960; Snyder Reference Snyder1961) to isolate new issues associated with imperfect attribution. In reality, there are several possible benefits of successful retaliation. Retaliation can disrupt an ongoing attack. It can provide reputational benefits and thus prevent future attacks. And it can satisfy a “taste for vengeance,” which could result from psychological or political concerns (Jervis Reference Jervis1979; McDermott, Lopez, and Hatemi Reference McDermott2017).
Relatedly, it may seem unlikely that a victim would ever retaliate against two different countries for the same cyberattack, as our model allows. This possibility can be ruled out by assuming that $$ {y}_i<\frac{1}{2} $$ for all $$ i\in I $$ with probability 1, which (as we will see) implies that the defender retaliates against a given attacker only if she believes that he is guilty with probability at least $$ 1-{y}_i>\frac{1}{2} $$—a condition that cannot be satisfied for two attackers simultaneously.
Third, the special case of perfect attribution arises when $$ {\pi}_0^0=1 $$ and, for each attacker $$ i $$, there exists a signal $$ {s}_i\ne 0 $$ such that $$ {\pi}_i^{s_i}=1 $$. In this case, since $$ {y}_i\in \left[0,1\right) $$, attacker $$ i $$ faces retaliation if and only if he himself attacks. In contrast, with imperfect attribution, attacker $$ i $$ might not face retaliation when he attacks, and he might face retaliation when no one attacks (as the result of a false alarm) or when a different attacker attacks (as the result of misidentification). Thus, deterrence with perfect attribution reduces to bilateral interactions between the defender and each attacker, while imperfect attribution introduces multilateral strategic considerations.
Fourth, while we have presented the choices of whether to attack and retaliate as binary decisions made by agents with private information ($$ {x}_i $$ for attacker $$ i $$; $$ y $$ for the defender), an equivalent, equally realistic, interpretation is that these are continuous choices made under complete information. Here, rather than interpreting $$ {r}_i^s\in \left[0,1\right] $$ as the probability of retaliation (against attacker $$ i $$, after signal $$ s $$), interpret it as the intensity of retaliation, where retaliating with intensity $$ {r}_i^s $$ against a guilty attacker yields a concave benefit $$ {b}_i\left({r}_i^s\right) $$ (and retaliating against an innocent attacker yields $$ {b}_i\left({r}_i^s\right)-1 $$). This is equivalent to the binary-retaliation model, with $$ {b}_i\left({r}_i^s\right) $$ equal to the expected retaliation benefit $$ {y}_i $$ for the defender when she retaliates with ex ante probability $$ {r}_i^s $$.Footnote 10 A similar comment applies for the attackers, where now $$ {p}_i $$ is interpreted as the intensity of attack.Footnote 11
Fifth, we consider a static model where at most one potential attacker has an opportunity to attack. This approach is equivalent to considering the Markov perfect equilibrium in a continuous-time dynamic model where, for each attacker, an independent and identically distributed Poisson clock determines when that attacker has an attack opportunity. As the probability that independent Poisson clocks tick simultaneously is zero, in such a model it is without loss of generality to assume that two attackers can never attack at exactly the same time. If multiple attackers can attack simultaneously, our model continues to apply if the payoff consequences of each attack (and any subsequent retaliation) are additively separable and signals are independent across attacks.
Sixth, the payoff functions admit several different interpretations. We have normalized both the cost to an attacker of facing retaliation and the cost to the defender of retaliating in error to 1. This means that $$ {x}_i $$ and $$ y $$ measure the benefit of a successful attack/retaliation relative to the cost of facing retaliation/retaliating in error. There are many possible benefits from successful cyberattacks. The Chinese used cyber espionage to acquire plans for the F-35 from a US military contractor, allowing them to build a copy-cat stealth fighter at accelerated speed and low cost. The United States and Israel used cyberattacks to disrupt the Iranian nuclear program. Cyberattacks have also been used to incapacitate an adversary’s military capabilities—for instance by disrupting communications, banking, or intelligence—by the United States (against Iraqi insurgents), Russia (in Ukraine, Georgia, and Estonia), Israel (in Syria), and others. Variation in the costs of retaliation could derive from the vulnerability of a country’s civil or economic infrastructure to cyberattack. Thus, for example, North Korea may be more aggressive in the cyber domain than the United States because it does not have a vulnerable tech sector that could be disrupted by cyber retaliation. Finally, as technologies for hardening targets, denying access, and improving security improve, the distribution of benefits may worsen (Libicki, Ablon, and Webb Reference Libicki, Ablon and Webb2015).
Finally, a signal$$ s $$ should be interpreted as containing all information available to the defender concerning the origin of a potential attack. This may include, for example, the systems targeted by the attack, the location of the servers where the attack originated, and the language and style of any malicious code.
Equilibrium Characterization
In this section, we characterize equilibrium and show that the attackers’ strategies are endogenous strategic complements: if one attacker attacks with higher probability, they all attack with higher probability. This simple complementarity is a key factor in many of our results.
Our results focus on equilibrium attack probabilities because this speaks directly to the success of deterrence. But changes to attack probabilities also correspond to changes in defender welfare: for most of our comparative statics, the defender’s payoff always moves in the opposite direction from the attack probabilities, including for the results described in Propositions 2, 3, and 5; Theorems 3 and 4; and Corollaries 1, 2, 3, and 4.
We first characterize the attackers’ cutoffs $$ {x}^{\ast } $$ as a function of the defender’s retaliation probabilities $$ r $$. The following formula results because an attack by $$ i $$ provides a benefit of $$ {x}_i $$, while raising the probability of facing retaliation from $$ {\sum}_s\ {\pi}_0^s\ {r}_i^s $$ to $$ {\sum}_s\ {\pi}_i^s{r}_i^s $$ (omitted proofs are in the Appendix).
Lemma 1 In every equilibrium, for every $$ i\ \in \kern0.5em I $$, attacker $$ i $$’s cutoff is given by
Next, we characterize the defender’s cutoffs $$ {y}^{\ast } $$ as a function of the attackers’ attack probabilities $$ p $$. Note that, if $$ i $$ attacks with probability $$ {p}_i $$ when given the opportunity, his unconditional probability of attacking is $$ \frac{\gamma }{n}{p}_i $$. Therefore, given a vector of (conditional) attack probabilities $$ p\in {\left[0,1\right]}^n $$, the probability that $$ i $$ attacked conditional on signal $$ s $$ equals
At the optimum, the defender retaliates against $$ i $$ after signal $$ s $$ if and only if her benefit of retaliating against him ($$ {y}_i $$) exceeds her cost of doing so, which equals $$ 1-{\beta}_i^s(p) $$, the probability that he is “innocent.”
Lemma 2 In every equilibrium, for every $$ i\in I $$and $$ s\in S $$, the defender’s cutoff is given by
We also note that the defender never retaliates after the null signal, by Assumptions 1 and 2.
Lemma 3 In every equilibrium, $$ {r}_i^0=0 $$for all $$ i\in I $$.
Our first result combines Lemmas 1, 2, and 3 to give a necessary and sufficient condition for a vector of attack and retaliation probabilities $$ \left(p,r\right)\in {\left[0,1\right]}^n\times {\left[0,1\right]}^{n\left|S\right|} $$ to be an equilibrium.
Proposition 1 A vector of attack and retaliation probabilities $$ \left(p,r\right) $$is an equilibrium if and only if
and
for all $$ i\in I $$and $$ s\in S $$.
Equation (5) is key for understanding our model. The left-hand side is attacker$$ i $$’s cutoff (recall, $$ {x}_i^{\ast }={F}_i^{-1}\left(1-{p}_i\right) $$). The right-hand side is the increase in the probability that $$ i $$ faces retaliation when he attacks, noting that the probability that an attacker faces retaliation after any signal equals the probability that the defender’s propensity to retaliate ($$ {y}_i $$) exceeds the probability that the attacker did not attack conditional on the signal ($$ {y}_i^{s\ast }=1-{\beta}_i^s(p) $$). Equilibrium equates these two quantities.
The strategic complementarity in our model can now be seen from the fact that $$ {\beta}_i^s(p) $$ is increasing in $$ {p}_i $$ and decreasing in $$ {p}_j $$ for all $$ j\ne i $$. To see the idea, suppose $$ i $$ attacks with higher probability: $$ {p}_i $$ increases. This makes attacker $$ i $$ more “suspect” after every non-null signal and makes every attacker $$ j\ne i $$ less suspect: for every $$ s\ne 0 $$, $$ {\beta}_i^s $$ increases and $$ {\beta}_j^s $$ decreases. In turn, this makes the defender retaliate more against $$ i $$ and less against $$ j $$: for every $$ s\ne 0 $$, $$ {r}_i^s $$ increases and $$ {r}_j^s $$ decreases. Finally, this makes $$ j $$ attack with higher probability: $$ {x}_j^{\ast } $$ decreases. Intuitively, when one attacker becomes more likely to attack, this makes the other attackers attack with higher probability, as they know their attacks are more likely to be attributed to the first attacker, which makes it less likely that they will face retaliation following an attack. This complementarity is the key multilateral aspect of deterrence with imperfect attribution.
Let us clarify a potential point of confusion. If attacker $$ i $$ attacks with higher probability ($$ {p}_i $$ increases) while all other attack probabilities are held fixed and the defender is allowed to respond optimally, the effect on the total probability that another attacker $$ j $$ faces retaliation, evaluated ex ante at the beginning of the game, is ambiguous: attacker $$ j $$ is less suspect (and therefore faces less retaliation) after any given attack, but the total probability that an attack occurs increases. However, only the former effect—the probability of facing retaliation after a given attack—matters for $$ j $$’s incentives, because $$ j $$ cannot affect the probability that he is retaliated against in error after one of $$ i $$’s attacks. In other words, strategic complementarity operates entirely through the “intensive” margin of the retaliation probability following a given attack, not the “extensive” margin of the total number of attacks.
To formalize this endogenous strategic complementarity, it is useful to introduce a new function.
Definition 1 The endogenous best response function$$ h:{\left[0,1\right]}^n\to {\left[0,1\right]}^n $$is defined by letting $$ {h}_i(p) $$be the unique solution $$ {p}_i^{\prime}\in \left[0,1\right] $$to the equation
for all $$ i\in I $$, and letting $$ h(p)={\prod}_{i\in I}\ {h}_i(p) $$.
Intuitively, if the attack probabilities of all attackers other than $$ i $$ are fixed at $$ {p}_{-i}\ \in\ {\left[0,1\right]}^{n-1} $$, then $$ {h}_i(p) $$ is the unique equilibrium attack probability for attacker $$ i $$ in the induced two-player game between attacker $$ i $$ and the defender. Note that $$ {h}_i(p) $$ is well-defined, as the right-hand side of (7) is always between $$ 0 $$ and $$ 1 $$ and is continuous and non-increasing in $$ {p}_i^{\prime } $$, and thus equals $$ {p}_i^{\prime } $$ at a unique point in the unit interval. Note also that $$ p\ \in\ {\left[0,1\right]}^n $$ is an equilibrium vector of attack probabilities if and only if it is a fixed point of $$ h $$.
The following lemma formalizes the strategic complementarity described above: if attacker $$ j $$ attacks more often, this makes attacker $$ i $$ less suspect, so attacker $$ i $$ also attacks more often.
Lemma 4 For all distinct $$ i,j\in I $$and all $$ {p}_{-j}\ \in\ {\left[0,1\right]}^{n-1} $$, $$ {h}_i\left({p}_j,{p}_{-j}\right) $$is non-decreasing in $$ {p}_j $$.
Equilibrium Properties and Comparative Statics
This section establishes equilibrium uniqueness and presents comparative statics with respect to $$ {F}_i $$ and $$ {G}_i $$, the distributions of the attackers’ and defender’s aggressiveness.
Unique Equilibrium
Notwithstanding the strategic complementarity in the model, there is always a unique equilibrium. As discussed in the Introduction, this is in stark contrast to standard models of crime waves, which emphasize multiple equilibria. To see the intuition, suppose there are two equilibria and attacker $$ i $$’s attack probability increases by the greatest proportion (among all attackers) in the second equilibrium relative to the first. Then, because the defender’s beliefs are determined by the attackers’ relative attack probabilities, attacker $$ i $$ is more suspect after every signal in the second equilibrium. The defender therefore retaliates against attacker $$ i $$ more often in the second equilibrium. But then attacker $$ i $$ should attack less in the second equilibrium, not more.
Theorem 1 There is a unique equilibrium.
Complementary Aggressiveness
Lemma 4 shows that, if one attacker attacks with higher probability, this induces all attackers to attack with higher probability. Of course, attack probabilities are endogenous equilibrium objects. To understand how such a change in behavior might result from changes in model primitives, we turn to comparative statics with respect to the distributions $$ {F}_i $$ and $$ G $$.
As we have already discussed, the parameter $$ {x}_i $$ represents attacker $$ i $$’s benefit from a successful attack relative to the cost of facing retaliation. Similarly, the parameter $$ {y}_i $$ represents the benefit of successful retaliation relative to the cost of retaliating against the wrong target. Thus, a change in the distributions $$ {F}_i $$ or $$ {G}_i $$ might result from a change in the distribution of benefits or the distribution of costs. In what follows, we say that attacker $$ i $$ (resp., the defender) becomes more aggressive if $$ {F}_i $$ (resp., $$ {G}_i $$ for all $$ i\in I $$) increases in the first-order stochastic dominance sense.
Attackers’ Aggressiveness
If any attacker becomes more aggressive, then in equilibrium all attackers attack with higher probability, and as a consequence the total probability of an attack increases. The intuition is as above: if one attacker attacks more often, the other attackers become less suspect and therefore face retaliation less often, which leads them to attack more often as well.
Proposition 2 Suppose attacker $$ i $$becomes more aggressive, in that his type distribution changes from $$ {F}_i $$to $$ {\overset{\sim }{F}}_i $$, where $$ {\overset{\sim }{F}}_i\left({x}_i\right)\le {F}_i\left({x}_i\right) $$for all $$ {x}_i $$. Let $$ \left(p,r\right) $$ (resp., $$ \left(\overset{\sim }{p},\overset{\sim }{r}\right) $$) denote the equilibrium attack and retaliation probabilities under $$ {F}_i $$(resp., $$ {\overset{\sim }{F}}_i $$). Then,
1. $$ {p}_i\le\ \tilde{p}_{i} $$and $$ {p}_j\ \le\ \tilde{p}_{j} $$for every $$ j\ne i $$.
2. For every $$ j\ne i $$, there exists $$ s\in S $$such that $$ {r}_j^s\ \ge\ \tilde{r}_{j}^s $$.
The logic of endogenous strategic complementarity plays a role throughout the paper, including in our later analysis of false-flag operations and the commitment solution. In those sections, we discuss how this mechanism appears consistent with a variety of accounts in the qualitative literature.
Defender’s Aggressiveness
As compared with an increase in an attacker’s aggressiveness, an increase in the defender’s aggressiveness has the opposite effect on deterrence: all attackers attack with lower probability (because retaliation is more likely), and consequently the total probability of an attack goes down. Thus, greater aggressiveness on the part of the defender strengthens deterrence.
Proposition 3 Suppose the defender becomes more aggressive, in that her type distribution changes from $$ G $$to $$ \overset{\sim }{G} $$, where $$ {\overset{\sim }{G}}_i\left({y}_i\right)\ \le\ {G}_i\left({y}_i\right) $$for all $$ i\in I $$and all $$ {y}_i $$. Let $$ \left(p,r\right) $$ (resp., $$ \left(\overset{\sim }{p},\overset{\sim }{r}\right) $$) denote the equilibrium attack and retaliation probabilities under $$ G $$(resp., $$ \overset{\sim }{G} $$). Then
1. $$ {p}_i\ \ge\ \tilde{p}_{i} $$for every $$ i\in I $$.
2. For every $$ i\in I $$, there exists $$ s\in S $$such that $$ {r}_i^s\ \le\ \tilde{r}_{i}^s $$.
The effects of defender aggressiveness are especially important for our subsequent discussion of changes in the defender’s retaliation technology and the commitment solution. There we link these effects to descriptions in the qualitative literature.
Equilibrium Mutes Attacker Heterogeneity
If we put a little more structure on the model, we can make two further observations about attacker aggressiveness. First, not surprisingly, inherently more aggressive attackers attack with higher probability in equilibrium. Second, notwithstanding this fact, equilibrium mutes attacker heterogeneity: that is, inherently more aggressive attackers use a more demanding cutoff (i.e., a higher $$ {x}_i^{\ast } $$), and hence the difference in equilibrium attack probabilities between differentially aggressive attackers is less than it would be if such attackers used the same cutoff. The intuition is that inherently more aggressive attackers are more suspect and therefore face more retaliation, which leads them to attack only for higher realized attack benefits.
This result implies another sense in which settings with imperfect attribution are fundamentally multilateral. Suppose attacker 1 is inherently much more aggressive than attacker 2. A naïve analysis would suggest that attacker 2 can be safely ignored. But this neglects attacker 2’s great advantage of being able to hide behind attacker 1: if all attacks were assumed to come from attacker 1, attacker 2 could attack with impunity. Hence, equilibrium requires some parity of attack probabilities, even between attackers who are highly asymmetric ex ante.
To isolate the effect of heterogeneous aggressiveness, in this subsection we restrict attention to symmetric information structures—without such a restriction, an inherently more aggressive attacker might nonetheless use a less demanding cutoff, if his attacks are more difficult for the defender to detect or attribute. The information structure is symmetric if, for every permutation $$ \rho $$ on $$ I $$, there exists a permutation $$ {\rho}^{\prime } $$ on $$ S\setminus \left\{0\right\} $$ such that $$ {\pi}_i^s={\pi}_{\rho (i)}^{\rho^{\prime }(s)} $$ for all $$ i\in I $$ and $$ s\in S\setminus \left\{0\right\} $$. Intuitively, this says that any two attacks have a symmetric effect on the defender’s signal distribution: for any possible relabeling of the attackers, there exists a corresponding relabeling of the signals that leaves the signal distribution unchanged.Footnote 12
Proposition 4 Suppose the information structure is symmetric. Then, for every equilibrium and every $$ i,j\in I $$, the following are equivalent:
1. $$ i $$attacks with higher probability than $$ j $$: $$ {p}_i>{p}_j. $$
2. $$ i $$has a higher threshold than $$ j $$: $$ {x}_i^{\ast }>{x}_j^{\ast } $$.
3. $$ i $$is “inherently more aggressive” than $$ j $$: $$ {F}_i\left({x}_i^{\ast}\right)<{F}_i\left({x}_j^{\ast}\right) $$, and hence $$ {F}_i(x)<{F}_j(x) $$for all $$ x\in [{x}_j^{\ast },{x}_i^{\ast }] $$.
4. $$ i $$is “more suspect” than $$ j $$: for every permutation $$ \rho $$on $$ I $$mapping $$ i $$to $$ j $$and every corresponding permutation $$ {\rho}^{\prime } $$on $$ S\setminus \left\{0\right\} $$, $$ {\beta}_i^s>{\beta}_j^{\rho^{\prime }(s)} $$for all $$ s\in S\setminus \left\{0\right\} $$.
Proposition 4’s message that equilibrium attack probabilities must be moderated relative to attackers’ underlying preferences is relevant for assessing the US shift to a focus on China and Russia, discussed earlier. We will provide a more detailed discussion of this aspect of the 2018 Cyber Strategy in the context of the commitment model.
When Does Improving Attribution Improve Deterrence?
Attribution problems significantly complicate deterrence. As such, a natural intuition is that improving the defender’s information—and thus the ability to attribute attacks—will improve deterrence. In this section, we probe this intuition by studying how changes in the defender’s information structure—the matrix $$ \pi ={\left({\pi}_i^s\right)}_{i\in I\cup \left\{0\right\},s\in S} $$—affect deterrence. We will see that the conventional wisdom that better information improves deterrence is not always correct, but we also provide formal support for some more nuanced versions of this claim.
Our results build directly on our decomposition of attribution problems into false alarms, detection failure, and misidentification. Roughly speaking, we show that the following types of improvements in information always improve deterrence:
1. Improving detection if the perpetrators of the newly detected attacks are always identified correctly.
2. Replacing misidentification with non-detection.
3. Reducing false alarms.
4. Improving detection independently of identification.
However, two types of improvements can backfire and increase equilibrium attack probabilities:
1. Refining signals that are already strong enough to cause retaliation.
2. Improving detection if the perpetrators of the newly detected attacks are especially hard to identify.
Thus, from a policy perspective, some care must be taken in investing in improved detection and attribution technologies. In particular, a defender need not benefit from further refining a signal that is already strong enough to spark retaliation, and improvements in detection technology are only valuable if the newly detected signals can also be attributed with some degree of success.
These results rely on the assumption that the attackers know the defender’s information structure: of course, if the defender can improve her information without the attackers’ knowledge, this can only make her better off. However, it is clear that the same effects would arise in a more realistic model where attackers observe the defender’s information structure imperfectly. The case where attackers are completely unaware of improvements in the defender’s information strikes us as less realistic.
We organize our results as follows. First, we present two main results—Theorems 2 and 3—that provide sufficient conditions for a change in the information structure to improve deterrence. We then show how these results imply the four “positive” claims above as corollaries. Finally, we provide examples showing that the conditions for Theorems 2 and 3 cannot be relaxed, which yield the two “negative” claims above.
Throughout this section, we consider changes in the defender’s information structure from $$ \pi $$ to $$ \overset{\sim }{\pi } $$, and let variables without (resp., with) tildes denote equilibrium values under information structure $$ \pi $$ (resp., $$ \overset{\sim }{\pi } $$).
Sufficient Conditions for a Change in the Information Structure to Improve Deterrence
This subsection presents general sufficient conditions for a change in the information structure to improve deterrence.
Let $$ {r}_i^s\left(p;\pi \right) $$ be the probability that attacker $$ i $$ faces retaliation given signal $$ s $$, prior attack probabilities $$ p $$, and information structure $$ \pi $$:
where $$ {\beta}_i^s\left(p;\pi \right) $$ is given by equation (3), and we have made the dependence of $$ \beta $$ on $$ \pi $$ explicit. Let $$ {x}_i\left(p;\pi \right) $$ be the increase in the probability that attacker $$ i $$ faces retaliation when he attacks given prior attack probabilities $$ p $$ and information structure $$ \pi $$:
Recall that, in equilibrium, $$ {x}_i^{\ast }={x}_i\left(p;\pi \right) $$.
Our first main result is that, if the information structure changes such that the defender becomes “more retaliatory,” in that all cutoffs $$ {x}_i\left(p;\pi \right) $$ increase holding the attack probabilities fixed, then in equilibrium all attack probabilities must decrease. Intuitively, this is a consequence of strategic complementarity: if $$ \pi $$ changes so that each $$ {x}_i\left(p;\pi \right) $$ increases for fixed $$ p $$, strategic complementarity then pushes all the cutoffs even further up.
Theorem 2 Fix two information structures $$ \pi $$and $$ \overset{\sim }{\pi } $$, and let $$ p $$(resp., $$ \overset{\sim }{p} $$) be the vector of equilibrium attack probabilities under $$ \pi $$(resp., $$ \overset{\sim }{\pi } $$). If $$ {x}_i\left(p;\overset{\sim }{\pi}\right)\ \ge\ {x}_i\left(p;\pi \right) $$for all $$ i\in I $$, then $$ \tilde{p}_{i}\ \le\ {p}_i $$for all $$ i\in I $$. If in addition $$ {x}_i\left(p;\overset{\sim }{\pi}\right)>{x}_i\left(p;\pi \right) $$for some $$ i\in I $$, then $$ \tilde{p}_{i}<{p}_i $$.
An important consequence of this result is the following: Suppose, conditional on an attack by $$ i $$, probability weight is shifted from a signal $$ s $$ where $$ i $$ did not face retaliation to a signal $$ {s}^{\prime } $$ where no one else faced retaliation. This always improves deterrence. The logic is that, holding the attack probabilities fixed, such a change in the information structure induces weakly more retaliation against $$ i $$ (at signal $$ {s}^{\prime } $$, since $$ i $$ has become more suspect at $$ {s}^{\prime } $$) and also induces weakly more retaliation against everyone else (at signal $$ s $$, since everyone else has become more suspect at $$ s $$). Theorem 2 then implies that all equilibrium attack probabilities must decrease.
Theorem 3 Suppose that, with information structure $$ \pi $$, there is a signal $$ s $$where attacker $$ i $$faces no retaliation (i.e., $$ {r}_i^s=0 $$) and a signal $$ {s}^{\prime } $$where no other attacker $$ j $$faces retaliation (i.e., $$ {r}_j^{s^{\prime }}=0 $$for all $$ j\ne i $$). Suppose also that, conditional on an attack by $$ i $$, information structure $$ \overset{\sim }{\pi } $$shifts weight from signal $$ s $$to signal $$ {s}^{\prime } $$: that is, $$ {\pi}_i^s>{\overset{\sim }{\pi}}_i^s $$, $$ {\pi}_i^{s^{\prime }}<{\overset{\sim }{\pi}}_i^{s^{\prime }} $$, and $$ {\pi}_j^{\hat{s}}={\overset{\sim }{\pi}}_j^{\hat{s}} $$for all $$ \left(j,\hat{s}\right)\ne \left(i,s\right),\left(i,{s}^{\prime}\right) $$. Then $$ \tilde{p}_{j}\ \le\ {p}_j $$for all $$ j\in I $$. Moreover, if $$ 0<{r}_i^{s^{\prime }}<1 $$and $$ 0<{p}_i<1 $$then $$ \tilde{p}_{i}<{p}_i $$; and if $$ 0<{r}_j^s<1 $$and $$ 0<{p}_j<1 $$for some $$ j\ne i $$then $$ \tilde{p}_{j}<{p}_j $$.
Types of Changes that Always Improve Deterrence
We can now derive the “positive” results previewed above.
Improving Detection without Increasing Misidentification
First, shifting mass from the null signal to a signal that never sparks mistaken retaliation always improves deterrence. For example, suppose Stuxnet had revealed some technical feature that was unique to American cyberattacks. For Iran, investing in better detection of such incursions would unambiguously improve deterrence. By detecting identifiable attacks by the US that it had previously missed, such an investment would increase the likelihood that Iran retaliates against US cyberattacks, without increasing the risk of mistakenly retaliating against the wrong adversary. Such an improvement would thus directly decrease US aggressiveness towards Iran, and through strategic complementarity would also reduce the aggressiveness of Iran’s other adversaries.
Corollary 1 Suppose that, with information structure $$ \pi $$, there is a non-null signal $$ s $$where all attackers $$ j\ne i $$face no retaliation (i.e., $$ {r}_j^s=0 $$for all $$ j\ne i $$). Footnote 13If, conditional on an attack by $$ i $$, $$ \overset{\sim }{\pi } $$shifts weight from the null signal to signal $$ s $$, then $$ \tilde{p}_{j}\ \le\ {p}_j $$for all $$ j\in I $$. Moreover, if $$ 0<{r}_i^s<1 $$and $$ 0<{p}_i<1 $$then $$ \tilde{p}_{i}<{p}_i $$.
Proof. Since $$ {r}_i^0=0 $$ and $$ {r}_j^s=0 $$ for all $$ j\ne i $$, this follows from Theorem 3.
Replacing Misidentification with Non-Detection
Second, misidentification is worse than non-detection, in the following sense: if it is possible that an attack by $$ i $$ is detected but is not attributed to $$ i $$ with enough confidence to cause retaliation, the defender would be better off if this attack were not detected at all. For example, the identification error in the Solar Sunrise episode should have made the US wary of its ability to distinguish between attacks by Iraq and independent hackers. If this makes the US unwilling to respond to genuine attacks by Iraq, then the US would be better off being unable to detect attacks by independent hackers like Solar Sunrise: such a change would not affect independent hackers’ incentives, while making it easier to identify a genuine attack by Iraq.
Corollary 2 Suppose that, with information structure $$ \pi $$, there is a non-null signal $$ s $$where attacker $$ i $$faces no retaliation (i.e., $$ {r}_i^s=0 $$). If, conditional on an attack by $$ i $$, $$ \overset{\sim }{\pi } $$shifts weight from signal $$ s $$to the null signal, then $$ \tilde{p}_{j}\le {p}_j $$for all $$ j\in I $$. Moreover, if $$ 0<{r}_j^s<1 $$and $$ 0<{p}_j<1 $$for some $$ j\ne i $$, then $$ \tilde{p}_{j}<{p}_j $$.
Proof. Since $$ {r}_j^0=0 $$ for all $$ j\ne i $$, this follows from Theorem 3.
Reducing False Alarms
Third, reducing false alarms (i.e., decreasing $$ {\pi}_0^s $$ for $$ s\ne 0 $$) always improves deterrence. When false alarms are less frequent, each non-null signal invites greater suspicion, and hence more retaliation. Also, the marginal impact of an attack on the probability of each non-null signal increases. Both of these effects increase the marginal impact of an attack on the probability of facing retaliation, and hence reduce the incentive to attack.
For example, suppose the Democratic National Committee implements procedures that make a system test less likely to be mistaken for an actual attack on their servers. This makes the United States more willing to retaliate following perceived attacks on DNC servers, which improves deterrence of Russian incursions.
Corollary 3 Suppose false alarms decrease: $$ {\overset{\sim }{\pi}}_0^s\ \le\ {\pi}_0^s $$for all $$ s\ne 0 $$and $$ {\overset{\sim }{\pi}}_0^0\ \ge\ {\pi}_0^0 $$, while $$ {\pi}_i={\overset{\sim }{\pi}}_i $$for all $$ i\in I $$. Then $$ \tilde{p}_{i}\le {p}_i $$for all $$ i\in I. $$Also, $$ \tilde{r}_{i}^s\ \ge\ {r}_i^s $$for all $$ s\ne 0 $$and all $$ i\in I. $$
Proof. By Theorem 2, it suffices to show that $$ {x}_i\left(p;\overset{\sim }{\pi}\right)\ \ge\ {x}_i\left(p;\pi \right) $$ for all $$ i $$. By the definition of $$ {x}_i\left(p;\pi \right) $$, since reducing false alarms increases $$ {\pi}_i^s-{\pi}_0^s $$ for all $$ s\ne 0 $$, it suffices to show that $$ {r}_i^s\left(p;\overset{\sim }{\pi}\right)\ \ge\ {r}_i^s\left(p;\pi \right) $$ for all $$ s\ne 0 $$. For this, it is in turn enough to show that $$ {\beta}_i^s\left(p;\overset{\sim }{\pi}\right)\ \ge\ {\beta}_i^s\left(p;\pi \right) $$ for all $$ s\ne 0 $$. But this is immediate from equation (3).
Improving Detection Independently of Identification
Fourth, in the important special case of our model where the detection and identification processes are independent, improving detection always improves deterrence. To formulate this case, suppose there exists a common detection probability $$ \in \left[0,1\right] $$, a false alarm probability $$ \phi \in \left[0,1\right] $$, and a vector of identification probabilities $$ \left({\rho}_i^s\right)\in {\left[0,1\right]}^{n\left|S-1\right|} $$ with $$ {\sum}_{s\ne 0}\ {\rho}_i^s=1 $$ for each $$ i\in I $$, such that
Corollary 4 If detection is independent of identification, improving detection decreases all equilibrium attack probabilities.
Proof. By Theorem 2, it suffices to show that $$ {\beta}_i^s\left(p;\overset{\sim }{\pi}\right)\ \ge\ {\beta}_i^s\left(p;\pi \right) $$ for all $$ i $$ and all $$ s\ne 0 $$. We have
Clearly, $$ {\beta}_i^s\left(p;\pi \right) $$ is non-decreasing in $$ \delta $$.
Moreover, note that $$ {\beta}_i^s\left(p;\pi \right) $$ depends on the detection probability and the false alarm probability only through their ratio $$ \delta \divslash \phi $$. Thus, when detection is independent of identification, improving detection is strategically equivalent to reducing false alarms.
Types of Changes that Can Degrade Deterrence
We now give our “negative” results. We can organize these results by showing why the conclusion of Theorem 3 can fail if either $$ {r}_i^s>0 $$ or $$ {r}_j^{s^{\prime }}>0 $$ for some $$ j\ne i $$.
Improving Detection while Worsening Identification
We first show how deterrence can be undermined by improving detection but simultaneously worsening identification. That is, shifting weight from the null signal to a signal where someone other than the attacker faces retaliation can reduce retaliation against both attackers and increase attacks. This is a partial converse to the result that replacing misidentification with non-detection improves deterrence (Corollary 2).
Example 1 There are two attackers and three signals. To fix ideas, think of the defender as Iran, and the two attackers as Israel (attacker 1) and Saudi Arabia (attacker 2). Let $$ \gamma =\frac{2}{3} $$, so with equal probability Israel can attack, Saudi Arabia can attack, or no one can attack. The information structure $$ \pi =\left({\pi}_i^s\right) $$ is
Thus, signal 1 is a good signal that Israel attacked (though it could also indicate a Saudi attack), while signal 2 unambiguously indicates a Saudi attack. There is also a possibility of detection failure.
Let $$ {x}_1\in \left\{{x}_1^L=\frac{1}{2},{x}_1^H=1\right\} $$, with $$ \mathit{\Pr}\left({x}_1={x}_1^H\right)=\frac{4}{5} $$.
Let $$ {x}_2\in \left\{{x}_2^L=\frac{1}{4},{x}_2^H=1\right\} $$, with $$ \mathit{\Pr}\left({x}_2={x}_2^H\right)=\frac{1}{2} $$.
Let $$ {y}_1={y}_2=\frac{1}{4} $$ with probability 1.Footnote 14
Claim 1 In the unique equilibrium with information structure $$ \pi $$, Israel attacks if $$ {x}_1={x}_1^H $$; Saudi Arabia attacks if $$ {x}_2={x}_2^H $$; and Iran retaliates against Israel if $$ s=1 $$and against Saudi Arabia if $$ s=2 $$. Thus, $$ {p}_1=\frac{4}{5} $$and $$ {p}_2=\frac{1}{2} $$.
Proof. It suffices to check that these strategies form an equilibrium. Given the conditional attack probabilities and the information structure, Iran’s posterior beliefs $$ \left({\beta}_i^s\right) $$ are given by
Since $$ y=\frac{1}{4} $$, Iran retaliates against attacker $$ i $$ after signal $$ s $$ if $$ {\beta}_i^s>\frac{3}{4} $$. Thus, Iran retaliates against Israel if $$ s=1 $$, and against Saudi Arabia if $$ s=2 $$. Therefore, $$ {x}_1^{\ast }=\frac{2}{3} $$ and $$ {x}_2^{\ast }=\frac{1}{3} $$. It follows that Israel attacks if $$ {x}_1={x}_1^H $$ and Saudi Arabia attacks if $$ {x}_2={x}_2^H $$. So this is an equilibrium.
Now suppose the Iranians improve their ability to detect Israeli attacks, such that the information structure changes to
Thus, when Israel attacks, the attack is always detected. But this improved detection isn’t “clean” with regard to identification: many Israeli attacks now look to the Iranians like Saudi attacks. In equilibrium, this causes Iran to stop retaliating after perceived Saudi attacks (signal 2), which leads Saudi Arabia to start attacking more. But this increased aggressiveness by Saudi Arabia degrades Iran’s confidence in its attribution of perceived Israeli attacks (signal 1), as these are now more likely to result from an attack by a more aggressive Saudi Arabia. This in turn causes Iran to stop retaliating after perceived Israeli attacks as well. Thus, this change in Iran’s information, whereby it gets better at detection but worse at identification, degrades deterrence.
Claim 2 In the unique equilibrium with information structure $$ \overset{\sim }{\pi } $$, both attackers attack whenever they have the opportunity, and Iran never retaliates. Thus, $$ {p}_1={p}_2=1 $$.
Proof. Again, we check that these strategies form an equilibrium. Combining the conditional attack probabilities and the information structure, Iran’s posterior beliefs are given by
Note that $$ {\beta}_i^s<\frac{3}{4} $$ for all $$ i\in \left\{1,2\right\} $$ and all $$ s $$. Hence, Iran never retaliates. This implies that $$ {x}_1^{\ast }={x}_2^{\ast }=0 $$, so both attackers always attack.
Refining Signals that Already Cause Retaliation
Deterrence can also be undermined by refining a signal that is already strong enough to cause retaliation. This can occur even if the signal refinement corresponds to a strict improvement in the information structure in the sense of Blackwell (Reference Blackwell and Neyman1951), and even if there is only one attacker, so that the model is a classical inspection game (Avenhaus, von Stengel, and Zamir Reference Rudolf, von Stengel, Zamir, Aumann and Hart2002).Footnote 15
To get an intuition for how this can work, suppose the US discovers some snippet of code that only the North Koreans use. The presence of this snippet then unambiguously attributes an attack to North Korea. So, when the US observes an attack from a North Korean server that doesn’t have the snippet, it might reason, “if this attack were really North Korea, we’d probably see that snippet.” This logic can make the US less willing to retaliate than it was before discovering the snippet. Such reluctance, in turn, makes North Korea more aggressive.
To see this in the context of our model, suppose there is a single attacker and three possible signals: null, imperfectly informative $$ \left(s=1\right) $$, and perfectly informative $$ \left(s=2\right) $$. Think of $$ s=1 $$ as an attack that appears to originate from North Korean servers and $$ s=2 $$ as an attack containing the snippet of code. Initially, the US doesn’t know to look for this snippet, so it never sees $$ s=2 $$. But the US is willing to retaliate when it sees attacks coming from North Korean servers, even though they might be a false alarm.
Example 2 There is one attacker and three signals. Let $$ \gamma =1 $$. The information structure is
Let $$ x=\frac{1}{3} $$ and $$ y=\frac{1}{2} $$.
Claim 3 In the unique equilibrium with information structure $$ \pi $$, the attacker attacks with probability $$ \frac{1}{4} $$, and the defender retaliates with probability $$ \frac{2}{3} $$when $$ s=1 $$.
Proof. It is clear that the equilibrium must be in mixed strategies. Let $$ p $$ be the probability the attacker attacks. The defender’s posterior belief when $$ s=1 $$ is $$ {\beta}_1^1=\frac{3p}{1+2p} $$. For the defender to be indifferent, this must equal $$ \frac{1}{2} $$. This gives $$ p=\frac{1}{4} $$.
For the attacker to be indifferent, the retaliation probability when $$ s=1 $$ must solve $$ \left(\frac{3}{4}-\frac{1}{4}\right){r}_1=\frac{1}{3} $$, or $$ {r}_1=\frac{2}{3} $$.
Now suppose the US gets better at attributing North Korean attacks: it becomes aware of, and can sometimes find, the identifying snippet of code when it is present. To capture this, suppose the information structure changes to
Finding the snippet is still difficult, so the perfect signal only has probability $$ \frac{1}{4} $$.Footnote 16 As a result, even certain retaliation following the perfect signal is not enough to deter an attack on its own. Moreover, the imperfect signal is now less indicative of an attack because the perfect signal is possible—when the snippet of code is missing, the US thinks it more likely that a perceived attack is really a false alarm. Realizing that it can now escape retaliation after an imperfect signal, North Korea becomes more aggressive.
Claim 4 In the unique equilibrium with information structure $$ \overset{\sim }{\pi } $$, the attacker attacks with probability $$ \frac{1}{3} $$, and the defender retaliates with probability $$ \frac{1}{3} $$when $$ s=1 $$and retaliates with probability $$ 1 $$when $$ s=2 $$.
Proof. Clearly, the defender retaliates with probability 1 when $$ s=2 $$. As $$ x>{\overset{\sim }{\pi}}_1^2 $$, this is not enough to deter an attack, so the defender must also retaliate with positive probability when $$ s=1 $$. The defender’s posterior belief when $$ s=1 $$ is now $$ {\overset{\sim }{\beta}}_1^1=\frac{2p}{1+p} $$. For the defender to be indifferent, this must equal $$ \frac{1}{2} $$. This gives $$ p=\frac{1}{3} $$.
For the attacker to be indifferent, the retaliation probability when $$ s=1 $$ must solve $$ \left(\frac{1}{2}-\frac{1}{4}\right){r}_1+\left(\frac{1}{4}\right)(1)=\frac{1}{3} $$, or $$ {r}_1=\frac{1}{3} $$.
Note, if the cost of being attacked ($$ K $$) is sufficiently large, the defender is better off with less information. The intuition is that, when weight shifts from $$ {\pi}_1^1 $$ to $$ {\pi}_1^2 $$, the attacker must attack with higher probability to keep the defender willing to retaliate after signal $$ 1 $$.
This result shows that a defender can be harmed by chasing too much certainty. In general, deterrence is undermined by extra information in regions of the defender’s belief space where the probability of retaliating against a given attacker is concave in the defender’s posterior belief about whether that attacker attacked. Since this is typically the case when the defender is almost certain the attacker attacked (as then she retaliates with probability close to $$ 1 $$), this implies that pursuing too much certainty in attribution is usually a mistake.
Of course, for any fixed attack probabilities, the defender benefits from having additional information, as this can only make retaliation more accurate. Thus, if the effect of improving the defender’s information on deterrence is positive, the overall effect on the defender’s payoff is positive; while if the effect on deterrence is negative, the overall effect can go either way.
Applications
We now explore two applications of particular relevance to contemporary discussions surrounding cyber strategy.
First, we consider the possibility that the defender may have multiple ways to retaliate, for example with a less destructive weapon (like a reciprocal cyberattack) or a more destructive one (like a conventional military, or even nuclear, attack). Our main result is that adding a more destructive weapon to the defender’s arsenal always improves deterrence, while adding a less destructive weapon can undermine deterrence.
Then we ask what happens when one attacker can attempt to mimic another attacker via a false-flag operation. Here we show that more aggressive attackers are more likely to be mimicked, as are attackers who are themselves easy to detect and identify when they attack.
Different Kinds of Retaliation
A central debate in cyber strategy concerns what weapons should be available for retaliation against a cyberattack. This question was raised with new urgency by the 2018 United States Nuclear Posture Review, which for the first time allowed the possibility of first-use of nuclear weapons in response to devastating but non-nuclear attacks, including cyberattacks (Sanger and Broad Reference Sanger2018). Less dramatically, the 2018 National Cyber Strategy allows both cyber and kinetic retaliation as possible responses to cyber activity (United States 2018).
Our model can capture many aspects of this debate, but not all of them. We do model the fact that a more destructive form of retaliation is likely more costly to use in error. But we cannot capture all possible objections to the Nuclear Posture Review, such as the potential consequences of “normalizing” first-use of nuclear weapons. Nonetheless, in the context of our model, we provide some support for the spirit of the Nuclear Posture Review by showing that adding a more destructive weapon to the defender’s arsenal always improves deterrence. By contrast, adding a less destructive weapon to the defender’s arsenal has competing effects and, as such, can either weaken or strengthen deterrence.
We model introducing a new retaliation weapon into the defender’s arsenal as follows: There is the original, legacy weapon $$ \ell $$, and a new weapon, $$ n $$. Each weapon $$ a\in \left\{\ell, n\right\} $$ is characterized by three numbers: the damage it does to an attacker, $$ {w}^a $$ (previously normalized to $$ 1 $$), the benefit using it provides to a type-$$ y $$ defender, $$ {y}^a $$, and the cost to the defender of using it on an innocent attacker, $$ {z}^a $$ (previously normalized to $$ 1 $$). Thus, when the defender observes signal $$ s $$ and forms belief $$ {\beta}_i^s $$ that attacker $$ i $$ is guilty, she retaliates using the weapon $$ a\in \left\{0,\ell, n\right\} $$ that maximizes
where $$ a=0 $$ corresponds to not retaliating, with $$ {y}^0={z}^0={w}^0=0 $$. We continue to assume that $$ K>{y}^a $$ for all $$ y\in \left[{\underset{\_}{y}}_i,{\bar{y}}_i\right] $$ and all $$ a $$, so that deterring an attack is preferred to being attacked and retaliating.
A couple points are worth noting. All else equal, the defender prefers to retaliate with a weapon that provides higher retaliatory benefits (higher $$ {y}^a $$) and lower costs for mistaken retaliation (lower $$ {z}^a $$). It seems reasonable to assume that these two features of a weapon may covary positively—more powerful weapons provide greater retaliatory benefits but are also more costly when misused. So the defender may face a trade-off, and she will balance this trade-off differently following different signals: when attribution is more certain, the defender is more willing to opt for a powerful response; while when attribution is less certain, the defender will respond in a way that limits costs in case of a mistake.
In light of this trade-off, we ask when introducing the new weapon into the arsenal improves the defender’s payoff.
First, it is easy to construct examples where introducing a weaker weapon (i.e., one with $$ {w}^n<{w}^{\ell } $$) into the defender’s arsenal makes her worse-off. For example, suppose that the new weapon also imposes lower costs when used in error ($$ {z}^n<{z}^{\ell } $$). Then there could be signals where the defender would have used the legacy weapon, but now switches to the new weapon. (Indeed, if $$ {y}^n>{y}^{\ell } $$ then the defender never uses the legacy weapon.) If $$ {w}^{\ell }-{w}^n $$ is sufficiently large, this undermines deterrence, which leaves the defender worse-off overall if the cost of being attacked ($$ K $$) is sufficiently large. The intuition is that, when a weaker weapon is available, ex post the defender is sometimes tempted to use it rather than the stronger weapon (in particular, when she is uncertain of the identity of the perpetrator). This is bad for ex ante deterrence. The defender can thus benefit from committing in advance to never retaliate with a less destructive weapon.
By contrast, introducing a new weapon that imposes greater costs on attackers (i.e., $$ {w}^n\ge {w}^{\ell } $$) always benefits the defender.Footnote 17 The intuition is that, holding the attack probabilities fixed, making a new, more destructive weapon available weakly increases the expected disutility inflicted on every attacker: this follows because, for each signal, the defender’s optimal response either remains unchanged or switches to the new, more damaging weapon. This reduces everyone’s incentive to attack, and strategic complementarity then reduces the equilibrium attack probabilities even more.
Proposition 5 Assume $$ {w}^n\ \ge\ {w}^{\ell } $$. Let $$ p $$(resp., $$ \overset{\sim }{p} $$) denote the equilibrium attack probabilities when the new weapon is unavailable (resp., available). Then $$ p\ \ge\ \overset{\sim }{p} $$.
False Flags
The attribution problem creates the possibility for false-flag operations, where one attacker poses as another to evade responsibility. False-flag operations are common in the cyber context (see Bartholomew and Guerrero-Saade Reference Bartholomew and Guerrero-Saade2016). We have, for instance, already discussed Russia’s attempt to mask various attacks by attempting to mimic North Koreans or Iranians.
A false-flag operation amounts to one attacker attempting to attack in a way that mimics, or is likely to be attributed to, another attacker. If multiple attackers can mimic each other, there will naturally be multiple equilibria, where different attackers are mimicked most often, due to a coordination motive in mimicking. As our main question of interest here is who is mostly likely to be mimicked, we rule out this effect by assuming that only attacker 1 has the ability to mimic other attackers.
For simplicity, in this subsection we consider a version of our earlier “independent detection and identification” model, while allowing the detection probability to vary across attackers. In particular, we assume the information structure is
Thus, attackers differ in how detectable they are ($$ {\delta}_i $$) and how identifiable they are ($$ {\rho}_i $$), but the information structure is otherwise symmetric.
The “mimic” (attacker 1) chooses an attack probability $$ {p}_1 $$ and, conditional on attacking, a probability distribution over whom to mimic, $$ \alpha\ \in\ \varDelta (I) $$. Given $$ \alpha $$, if the mimic attacks, signal $$ s=0 $$ realizes with probability $$ 1-{\delta}_1 $$ and each signal $$ i\ne 0 $$ realizes with probability
where $$ {\chi}_i\in \left(0,1\right) $$ measures 1’s ability to successfully mimic attacker $$ i $$. For example, an attacker with a less sophisticated arsenal of cyber weapons may be easier to mimic.
If the mimic chooses strategy $$ \alpha $$, for $$ i\ne 1 $$, we have
Denote the probability with which the mimic faces retaliation at signal $$ s $$ by
Given the vector of attack probabilities $$ p $$ (including $$ {p}_1 $$), the mimic chooses $$ \alpha $$ to solve
(Note that $$ \alpha $$ is fixed here by equilibrium expectations.) The derivative with respect to $$ {\alpha}_i^{\prime } $$ is
Thus, at the optimum, this derivative must be equal for all $$ i\ \in\ \mathrm{supp}\ \upalpha $$, and must be weakly greater for all $$ i\notin \operatorname {supp}\ \alpha $$. In particular, if $$ i,{i}^{\prime}\in \operatorname {supp}\ \alpha $$, we have
where both terms in parentheses are non-negative. Note that $$ {r}_1^i\left(\alpha \right) $$ is increasing in $$ {\beta}_1^i\left(\alpha \right) $$, which in turn is increasing in $$ {\pi}_1^i\left(\alpha \right) $$ and decreasing in $$ {\delta}_i $$, $$ {p}_i $$, and $$ {\rho}_i $$. We obtain the following result:
Proposition 6 Ceteris paribus, an attacker is mimicked more in equilibrium if he is more aggressive, easier to identify, easier to detect, or easier to mimic: for any two attackers $$ i,j\ne 1 $$, if $$ {p}_i\ \ge\ {p}_j $$, $$ {\rho}_i\ \ge\ {\rho}_j $$, $$ {\delta}_i\ \ge\ {\delta}_j $$, and $$ {\chi}_i\ \ge\ {\chi}_j $$, then $$ {\alpha}_i\ \ge\ {\alpha}_j $$.
More aggressive attackers are more like to be the victim of false-flag operations because they are more suspect when the signal points to them, which makes the mimic less suspect. The same intuition underlies the more subtle result that attackers that are easier to identify or detect are mimicked more: When such an attacker attacks, the signal is especially likely to point to him, rather than to a different attacker. This makes this attacker especially suspect when the signal points to him, which makes him an attractive target for false-flag operations.
We have already discussed recent operations where Russia chose to mimic Iran and North Korea, who had preexisting reputations for aggressiveness in cyber space. Another example involves China. In 2009, the Information Warfare Monitor uncovered the GhostNet plot, an infiltration of government and commercial computer networks the world over, originating in China. There were “several possibilities for attribution.” One was that the Chinese government and military were responsible. But the report also raises alternative explanations, including that the attack could have been the work of “a state other than China, but operated physically within China … for strategic purposes … perhaps in an effort to deliberately mislead observers as to the true operator(s).” (See Information Warfare Monitor Reference Monitor2009, 48–49.) Similar conclusions were reached half a decade earlier regarding the difficulty in attributing the Titan Rain attacks on American computer systems, which were again traced to internet addresses in China (Rogin Reference Rogin2010). In both cases, the United States government appears to have been highly reluctant to retaliate.
Given China’s reputation for aggressiveness in cyberspace, why is the United States so reluctant to retaliate for cyberattacks attributed to China? It seems a key factor is precisely the attribution problem and especially concerns about false-flags. In plain language, China’s reputation makes it particularly tempting for other actors to hide behind America’s suspicion of the Chinese. Singer and Friedman (Reference Singer and Friedman2014) describe exactly such a problem:
It is easy to assume that the [Chinese] government is behind most insidious activities launched by computers located within China. But, of course, this also means that bad actors elsewhere may be incentivized to target Chinese computers for capture and use in their activities, to misdirect suspicions. This very same logic, though, also enables Chinese actors to deny responsibility. (74)
Optimal Deterrence with Commitment
Our last set of results concerns the role of commitment on the part of the defender: how does the defender optimally use her information to deter attacks when she can commit to ex-post suboptimal retaliation after some signals?
This question matters because in reality the defender is likely to have some commitment power. For example, a branch of the military can announce a “strategic doctrine,” with the understanding that commanders who violate the doctrine are penalized.Footnote 18 Indeed, there is serious discussion in the cyber domain (as there was in the nuclear domain) of pre-delegation, whereby military commanders are granted authority to engage in various types of defensive or retaliatory actions without seeking approval from civilian authorities (Feaver and Geers Reference Feaver, Geers, Perkovich and Levite2017). For instance, recent changes to US policy delegate many decisions over cyber retaliation to the commander of US Cyber Command, requiring only minimal consultation with other government agencies (Sanger Reference Sanger2018).
We show that, as one might expect, with commitment the defender retaliates more often after some signals. Interestingly, this always leads all attackers to attack less often. Thus, generally speaking, the defender should try to commit herself to retaliate aggressively relative to her ex post inclination. But there are some subtleties: as we will see, there may also be some signals after which the defender retaliates less often with commitment than without. The intuition is that, since the attackers are less aggressive under commitment, some signals are now more likely to be false alarms, so retaliating after these signals becomes less efficient. We also characterize which attackers should be the focus of increased retaliation under commitment. After establishing each result, we discuss its implications for contemporary policy debates.
The Commitment Model
To analyze the commitment model, recall that the attackers’ strategies depend only on the defender’s retaliation probabilities $$ {\left({r}_i^s\right)}_{i\in I,s\in S} $$. Given a vector of retaliation probabilities, the optimal way for the defender to implement this vector is to retaliate against $$ i $$ after $$ s $$ if and only if $$ y>{G}^{-1}\left(1-{r}_i^s\right) $$. Hence, a commitment strategy can be summarized by a vector of cutoffs $$ {\left({y}_i^{s\ast}\right)}_{i\in I,s\in S} $$ such that the defender retaliates against $$ i $$ after signal $$ s $$ if and only if $$ {y}_i>{y}_i^{s\ast } $$.
What is the optimal vector of cutoffs, and how does it differ from the no-commitment equilibrium? The defender’s problem is
This uses the fact that $$ {x}_i^{\ast }={\sum}_s\left({\pi}_i^s-{\pi}_0^s\right)\left(1-{G}_i\left({y}_i^s\right)\right) $$, so attacker $$ i $$ attacks with probability $$ 1-{F}_i\left({\sum}_s\left({\pi}_i^s-{\pi}_0^s\right)\left(1-{G}_i\left({y}_i^s\right)\right)\right) $$. In the event attacker $$ i $$ attacks, the defender suffers a loss consisting of the sum of several terms (the terms in brackets above). First, she suffers a direct loss of $$ K $$. In addition, after signal $$ s $$, she receives $$ {y}_i $$ if she retaliates against attacker $$ i $$ (i.e., if $$ {y}_i>{y}_i^s $$) and receives $$ {y}_j-1 $$ if she erroneously retaliates against attacker $$ j $$ (i.e., if $$ {y}_j>{y}_j^s $$). If instead no one attacks, then the defender receives $$ {y}_j-1 $$ if she erroneously retaliates against attacker $$ j $$.
The first-order condition with respect to $$ {y}_i^s $$ is
The first term is the (bad) effect that increasing $$ {y}_i^s $$ makes attacker $$ i $$ attack more. The second term is the (also bad) effect that increasing $$ {y}_i^s $$ makes attacks by $$ i $$ more costly, because the defender successfully retaliates less often. The third term is the (good) effect that increasing $$ {y}_i^s $$ makes attacks by each $$ j\ne i $$ less costly, because the defender erroneously retaliates less often. The fourth term is the (good) effect that increasing $$ {y}_i^s $$ increases the defender’s payoff when no one attacks, again because the defender erroneously retaliates less often.
Denote the negative of the term in brackets (the cost of an attack by $$ i $$) by $$ {l}_i\left({y}^{\ast}\right) $$. Then we can rearrange the first-order condition to
In contrast, in the no-commitment model, $$ {y}_i^{s\ast } $$ is given by the equation
Thus, the only difference in the equations for $$ {y}^{\ast } $$ as a function of $$ {x}^{\ast } $$ is that the commitment case has the additional term $$ -{f}_i\left({x}_i^{\ast}\right)\left({\pi}_i^s-{\pi}_0^s\right){l}_i\left({y}^{\ast}\right) $$, reflecting the fact that increasing $$ {y}_i^{s\ast } $$ has the new cost of making attacks by $$ i $$ more likely. (In contrast, in the no-commitment case the attack decision has already been made at the time the defender chooses her retaliation strategy, so the defender trades off only the other three terms in the commitment first-order condition.) This difference reflects the additional deterrence benefit of committing to retaliate, and suggests that $$ {y}_i^{s\ast } $$ is always lower with commitment—that is, that commitment makes the defender more aggressive.
However, this intuition resulting from comparing the first-order conditions under commitment and no-commitment is incomplete: the $$ {x}^{\ast } $$’s in the two equations are different, and we will see that it is possible for $$ {y}_i^{s\ast } $$ to be higher with commitment for some signals. Nonetheless, we can show that with commitment all attackers attack with lower probability and the defender retaliates with higher probability after at least some signals.
Theorem 4 Let $$ \left(p,r\right) $$be the no-commitment equilibrium and let $$ \left(\overset{\sim }{p},\overset{\sim }{r}\right) $$be the commitment equilibrium. Then $$ {p}_i\ \ge\ \tilde{p}_{i} $$for all $$ i\in I $$, and for every $$ i\in I $$there exists $$ s\in S $$such that $$ {r}_i^s\ \le\ \tilde{r}_{i}^s $$.
The second part of the proposition is immediate from the first: if every attacker is less aggressive under commitment, every attacker must face retaliation with a higher probability after at least one signal. The first part of the proposition follows from noting that the endogenous best response function (cf. Definition 1) is shifted up under commitment, due to the defender’s additional deterrence benefit from committing to retaliate aggressively.
Theorem 4 shows that the defender benefits from committing to retaliate more aggressively after some signals. This is distinct from the search for credibility discussed in the nuclear deterrence literature (Powell 1990; Schelling 1960; Snyder 1961). There, one assumes perfect attribution, and the key issue is how to make retaliation credible (i.e., make $$ {y}_i $$ positive). Here, we take $$ {y}_i $$ positive for granted and show that the defender still has a problem of not being aggressive enough in equilibrium.
The US Department of Defense 2018 Cyber Strategy (Department of Defense 2018) differs from the Obama-era approach articulated in the 2015 Cyber Strategy (Department of Defense 2015) by focusing fairly narrowly on threats from Russia and China rather than from a broad range of major and minor powers and even non-state actors (see Kollars and Schenieder Reference Kollars and Schenieder2018, for a comparison). One interpretation of the new strategy is that it ranks attackers in terms of ex ante aggressiveness (i.e., the distributions $$ {F}_i $$ of the benefits of attack) and mainly threatens retaliation against the most aggressiveness attackers. But this misses the key role of deterrence in influencing marginal decisions. The marginal deterrence benefit to the defender from becoming more aggressive against attacker $$ i $$ after signal $$ s $$ is given by the $$ {f}_i\left({x}_i^{\ast}\right)\left({\pi}_i^s-{\pi}_0^s\right){l}_i\left({y}^{\ast}\right) $$ term in the equation for $$ {y}_i^{s\ast } $$. This benefit is larger if signal $$ s $$ is more informative that $$ i $$ attacked or if $$ i $$’s aggressiveness is likely to be close to the threshold. It has little to do with $$ i $$’s overall aggressiveness.
Finally, we remark that the strategic complementarity among attackers that drove our results in the no-commitment model partially breaks down under commitment. In particular, it is no longer true that an exogenous increase in attacker $$ i $$’s aggressiveness always makes all attackers more aggressive in equilibrium. The reason is that the complementarity effect from the no-commitment model may be offset by a new effect coming from the deterrence term $$ {f}_i\left({x}_i^{\ast}\right)\left({\pi}_i^s-{\pi}_0^s\right){l}_i\left({y}^{\ast}\right) $$ in the defender’s FOC. Intuitively, if attacker $$ i $$ starts attacking more often, this typically leads the defender to start retaliating more against attacker $$ i $$ ($$ {y}_i^{\ast } $$ decreases) and less against other defenders ($$ {y}_j^{\ast } $$ increases for $$ j\ne i $$). This strategic response by the defender has the effect of increasing $$ {l}_j\left({y}^{\ast}\right) $$ for all $$ j\ne i $$: since the defender retaliates more against $$ i $$ and less against $$ j $$, an attack by $$ j $$ becomes more costly for the defender, as it is more likely to be followed by erroneous retaliation against $$ i $$ and less likely to be followed by correct retaliation against $$ j $$. This increase in $$ {l}_j\left({y}^{\ast}\right) $$ then makes it more valuable for the defender to deter attacks by $$ j $$ (as reflected in the $$ {f}_j\left({x}_j^{\ast}\right)\left({\pi}_j^s-{\pi}_0^s\right){l}_j\left({y}^{\ast}\right) $$ term), which leads to an offsetting decrease in $$ {y}_j^{\ast } $$.
Signal Informativeness and Retaliation
Finally, we analyze which signals the defender is likely to respond to more aggressively under commitment, relative to the no-commitment equilibrium.
We start with an example showing that the optimal commitment strategy does not necessarily involve retaliating more aggressively after all signals. Suppose there are three signals: the null signal, an intermediate signal, and a highly informative signal. With commitment, the defender retaliates with very high probability after the highly informative signal. This deters attacks so successfully that the intermediate signal becomes very likely to be a false alarm. In contrast, without commitment, the equilibrium attack probability is higher, and the intermediate signal is more indicative of an attack. The defender therefore retaliates with higher probability following the intermediate signal without commitment.
Example 3 There is one attacker and three signals. Let $$ \gamma =\frac{1}{2} $$. The information structure is
Let $$ x\in \left\{{x}^L=\frac{1}{4},{x}^H=1\right\} $$, with $$ \mathit{\Pr}\left(x={x}^H\right)=\frac{1}{2} $$.
Let $$ y\in \left\{{y}^L=\frac{1}{5},{y}^H=\frac{3}{5}\right\} $$, with $$ \mathit{\Pr}\left(y={y}^H\right)=\frac{1}{2} $$. Let $$ K=1 $$.
Claim 5 In the unique equilibrium without commitment, $$ {p}_1=1 $$, and the equilibrium retaliation probabilities $$ {\left({r}^s\right)}_{s\in S} $$are given by
Claim 6 In the unique equilibrium with commitment, $$ {p}_1=\frac{1}{4} $$, and the equilibrium retaliation probabilities $$ {\left({r}^s\right)}_{s\in S} $$are given by
Under some circumstances, we can say more about how equilibrium retaliation differs with and without commitment. Say that signals $$ s $$ and $$ {s}^{\prime } $$ are comparable if there exists $$ {i}^{\ast}\in I $$ such that $$ {\pi}_i^s={\pi}_0^s $$ and $$ {\pi}_i^{s^{\prime }}={\pi}_0^{s^{\prime }} $$ for all $$ i\ne {i}^{\ast } $$. If $$ s $$ and $$ {s}^{\prime } $$ are comparable, say that $$ s $$ is more informative than $$ {s}^{\prime } $$ if
That is, $$ s $$ is more informative than $$ {s}^{\prime } $$ if, compared with $$ {s}^{\prime } $$, $$ s $$ is relatively more likely to result from an attack by $$ {i}^{\ast } $$ than from no attack (or from an attack by any $$ i\ne {i}^{\ast } $$).
The next Proposition shows that, if $$ s $$ is more informative than $$ {s}^{\prime } $$ and the defender is more aggressive after $$ {s}^{\prime } $$ with commitment than without, then the defender is also more aggressive after $$ s $$ with commitment than without. (Conversely, if the defender is less aggressive after $$ s $$ with commitment, then the defender is also less aggressive after $$ {s}^{\prime } $$ with commitment.) That is, commitment favors more aggressive retaliation following more informative signals. The intuition is that the ability to commit tilts the defender towards relying on the most informative signals to deter attacks, and any offsetting effects resulting from the increased probability of false alarms are confined to less informative signals.
Note that the following result concerns the defender’s aggressiveness toward any attacker, not only the attacker $$ {i}^{\ast } $$ used to compare $$ s $$ and $$ {s}^{\prime } $$.
Proposition 7 Let $$ \left(x,y\right) $$be the no-commitment equilibrium and let $$ \left(\overset{\sim }{x},\overset{\sim }{y}\right) $$be the commitment equilibrium. Fix an attacker $$ i\in I $$and signals $$ s,{s}^{\prime}\in S $$such that $$ s $$and $$ {s}^{\prime } $$are comparable, $$ s $$is more informative than $$ {s}^{\prime } $$, and $$ \mathit{\min}\left\{{y}_i^s,{y}_i^{s^{\prime }},\tilde{y}_{i}^s,\tilde{y}_{i}^{s^{\prime }}\right\}>0 $$. If $$ \tilde{y}_{i}^{s^{\prime }}\ \le\ {y}_i^{s^{\prime }} $$, then $$ \tilde{y}_{i}^s\ \le\ {y}_i^s $$; and if $$ \tilde{y}_{i}^s\ \ge\ {y}_i^s $$, then $$ \tilde{y}_{i}^{s^{\prime }}\ \ge\ {y}_i^{s^{\prime }} $$.
Theorem 4 is in broad agreement with recent arguments calling for more aggressive cyberdeterrence (e.g., Hennessy Reference Hennessy2017). One such proposal, due to Clarke and Knake (Reference Clarke2010), calls for holding governments responsible for any cyberattack originating from their territory, whether state sanctioned or otherwise. However, Example 3 shows that improving cyberdeterrence is more subtle than simply increasing aggressiveness across the board. While the optimal policy has the defender retaliate more aggressively after some signals, it does not necessarily involve increased retaliation after every signal. The problem with increased aggressiveness across the board is that it will lead to increased retaliation following relatively uninformative signals (e.g., the simple fact that an attack emanates from servers in Abu Dhabi or China). Increased aggressiveness following such uninformative signals heightens the risk of retaliation against an innocent actor. Moreover, as retaliatory aggressiveness ramps up and deters ever more attacks, this risk becomes greater, as a larger share of perceived attacks will turn out to be false alarms.
Conclusion
Motivated by recent developments in cyberwarfare, we developed a new model of deterrence with imperfect attribution. There are many possible extensions and elaborations. For example, in our model the roles of attacker and defender are distinct. More realistically, players might both attack others and face attacks themselves. In such a model, player $$ A $$ might be attacked by player $$ B $$ but attribute the attack to player $$ C $$, and hence retaliate against player $$ C $$. If player $$ C $$ correctly attributes this attack to player $$ A $$, he might retaliate against player $$ A $$, and attacks and retaliation may spread through the system. But if player $$ C $$ cannot identify who attacked him, he might not retaliate at all. Thus, misattribution might act as a firewall against global escalation. This suggests that a more symmetric version of our basic model might yield subtle insights about the influence of attribution errors on the global escalation of conflict.
Another extension would allow communication between the attackers and the defender prior to retaliation. Here each attacker will only send messages that minimize his own probability of facing retaliation. However, the defender can sometimes benefit by asking an attacker to send messages that affect that probability that other attackers face retaliation.
It would also be interesting to introduce different types of attacks, perhaps along with uncertainty about actors’ capabilities. In such a model, would deterrence be reserved for the largest attacks, even at the cost of allowing constant low-level intrusions? Would the ability to signal cyber capability lead to coordination on a peaceful equilibrium, or to perverse incentives leading to conflict? We hope the current paper helps inspire further research on these important and timely questions posed by the rise of cyber conflict.
Appendix: Omitted Proofs
Proof of Lemma 1. When attacker $$ i $$’s type is $$ {x}_i $$, his expected payoff when he attacks is $$ {x}_i-{\sum}_s{\pi}_i^s{r}_i^s $$, and his expected payoff when he has the opportunity to attack but does not attack is $$ -{\sum}_s{\pi}_0^s{r}_i^s $$. Therefore, $$ i $$ attacks when he has the opportunity if $$ {x}_i>{\sum}_s\left({\pi}_i^s-{\pi}_0^s\right){r}_i^s $$, and he does not attack if $$ {x}_i<{\sum}_s\left({\pi}_i^s-{\pi}_0^s\right){r}_i^s $$.
Proof of Lemma 2. When the defender’s type is $$ y $$, her (additional) payoff from retaliating against attacker $$ i $$ after signal $$ s $$ is $$ {y}_i-1+{\beta}_i^s(p) $$. Therefore, she retaliates if $$ {y}_i>1-{\beta}_i^s(p) $$, and does not retaliate if $$ {y}_i<1-{\beta}_i^s(p) $$.
Proof of Lemma 3. Note that
where the inequality follows because $$ {\pi}_0^0\ \ge\ {\pi}_j^0 $$ for all $$ j $$. The lemma now follows by (1).
Proof of Lemma 4. The right-hand side of (7) is non-decreasing in $$ {p}_j $$ for all $$ j\ne i $$. Hence, an increase in $$ {p}_j $$ shifts upward the right-hand side of (7) as a function $$ {p}_i^{\prime } $$ and thus increases the intersection with $$ {p}_i^{\prime } $$. Formally, the result follows from, for example, Theorem 1 of Milgrom and Roberts (1994).
Proof of Theorem 1. We show that $$ h $$ has a unique fixed point.
By Lemma 4 (and the fact that $$ {h}_i(p) $$ does not depend on $$ {p}_i $$), $$ h $$ is a monotone function on $$ {\left[0,1\right]}^n $$. Hence, by Tarski’s fixed point theorem, $$ h $$ has a greatest fixed point: that is, there is a fixed point $$ {p}^{\ast } $$ such that, for every fixed point $$ {p}^{\ast \ast } $$, $$ {p}_i^{\ast }\ \ge \kern0.4em {p}_i^{\ast \ast } $$ for all $$ i\in I $$.
Now let $$ {p}^{\ast } $$ be the greatest equilibrium, and let $$ {p}^{\ast \ast } $$ be an arbitrary equilibrium. We show that $$ {p}^{\ast }={p}^{\ast \ast } $$.
Fix $$ i\in {\mathrm{argmax}}_{j\in I}\frac{p_j^{\ast }}{p_j^{\ast \ast }} $$. As $$ {p}^{\ast } $$ is the greatest equilibrium, we have $$ \frac{p_i^{\ast }}{p_i^{\ast \ast }}\ge 1 $$. Therefore, for every $$ s\ne 0 $$,
where the first inequality holds because $$ \frac{p_i^{\ast \ast }}{p_i^{\ast }}\ \le\ \frac{p_j^{\ast \ast }}{p_j^{\ast }} $$ for all $$ j\ \in\ I $$ and $$ {\pi}_j^s-{\pi}_0^s\ \ge\ 0 $$ for all $$ j\ \in\ I $$ and $$ s\ne 0 $$, and the second inequality holds because $$ \frac{p_i^{\ast \ast }}{p_i^{\ast }}\le 1 $$. Notice this implies
As $$ {p}^{\ast } $$ is the greatest equilibrium, this implies $$ {p}_i^{\ast }={p}_i^{\ast \ast } $$. Since $$ i\in {\mathrm{argmax}}_{j\in I}\frac{p_j^{\ast }}{p_j^{\ast \ast }} $$, this implies $$ {p}_j^{\ast}\le {p}_j^{\ast \ast } $$ for all $$ j\in I $$. Hence, as $$ {p}^{\ast } $$ is the greatest equilibrium, $$ {p}^{\ast }={p}^{\ast \ast } $$.
Proof of Proposition 1. Equation (5) follows from combining (2), (4), $$ {x}_i^{\ast }={F}_i^{-1}\left(1-{p}_i\right) $$, and $$ {y}_i^{s\ast }={G}_i^{-1}\left(1-{r}_i^s\right) $$, and recalling that $$ {r}_i^0=0 $$. Equation (6) then follows from (3). The equation for $$ {r}_i^s $$ follows from combining (4) and $$ {y}_i^{s\ast }={G}_i^{-1}\left(1-{r}_i^s\right) $$.
1. Let $$ h $$ (resp., $$ \overset{\sim }{h} $$) denote the endogenous best response function under $$ {F}_i $$ (resp., $$ {\overset{\sim }{F}}_i $$). Note that $$ {h}_j\left({p}^{\prime}\right)\ \le\ \tilde{h}_{j}\left({p}^{\prime}\right) $$ for all $$ j\in I $$ and $$ {p}^{\prime}\in {\left[0,1\right]}^n $$. As $$ h $$ and $$ \overset{\sim }{h} $$ are monotone, it follows that $$ {h}^m\left(\left(1,\dots, 1\right)\right)\ \le\ {\overset{\sim }{h}}^m\left(\left(1,\dots, 1\right)\right) $$ for all $$ m $$, where $$ {h}^m $$ (resp., $$ {\overset{\sim }{h}}^m $$) denotes the $$ {m}^{\mathrm{th}} $$ iterate of the function $$ h $$ (resp., $$ \overset{\sim }{h} $$). As $$ h $$ and $$ \overset{\sim }{h} $$ are also continuous, and $$ p $$ and $$ \overset{\sim }{p} $$ are the greatest fixed points of $$ h $$ and $$ \overset{\sim }{h} $$, respectively, $$ \underset{m\to \infty }{\lim }{h}^m\left(\left(1,\dots, 1\right)\right)=p $$ and $$ \underset{m\to \infty }{\lim }{\overset{\sim }{h}}^m\left(\left(1,\dots, 1\right)\right)=\overset{\sim }{p} $$. Hence, $$ p\ \le\ \overset{\sim }{p} $$.
2. Immediate from part 1 of the proposition and (5).
Proof of Proposition 3. Analogous to Proposition 2, noting that increasing $$ G $$ in the FOSD order shifts $$ h $$ down.
Proof of Proposition 4. Fix a permutation $$ \rho $$ on $$ I $$ mapping $$ i $$ to $$ j $$ and a corresponding permutation $$ {\rho}^{\prime } $$ on $$ S\setminus \left\{0\right\} $$. Then
and
Hence,
Proof of Theorem 2. Suppose towards a contradiction that $$ \tilde{p}_{i}>{p}_i $$ for some $$ i $$. Let $$ i\in \mathrm{argmax}\frac{\tilde{p}_{i}{p_i} $$. Since $$ \tilde{p}_{i}>{p}_i $$, we must have $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)<{x}_i\left(p;\pi \right) $$. Combined with the assumption that $$ {x}_i\left(p;\overset{\sim }{\pi}\right)\ge {x}_i\left(p;\pi \right) $$, we have $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)<{x}_i\left(p;\overset{\sim }{\pi}\right) $$. But, for every $$ s\ne 0 $$, we have
where the inequality follows because $$ \frac{p_i}{\tilde{p}_{i}\le \frac{p_j}{\tilde{p}_{j} $$ for all $$ j\in I $$ and $$ \frac{p_i}{\tilde{p}_{i}<1 $$. This implies $$ {r}_i^s\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)\ge {r}_i^s\left(p;\overset{\sim }{\pi}\right) $$, and hence (since $$ {\overset{\sim }{\pi}}_i^s\ge {\overset{\sim }{\pi}}_0^s $$ for all $$ s\ne 0 $$) $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)\ge {x}_i\left(p;\overset{\sim }{\pi}\right) $$. Contradiction.
The proof of the strict inequality is almost identical: Now $$ \tilde{p}_{i}\ \ge\ {p}_i $$ implies $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)\ \le\ {x}_i\left(p;\pi \right) $$, which combined with the assumption that $$ {x}_i\left(p;\overset{\sim }{\pi}\right)>{x}_i\left(p;\pi \right) $$ again implies $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)<{x}_i\left(p;\overset{\sim }{\pi}\right) $$. The same argument now gives a contradiction.
Proof of Theorem 3. By Theorem 2, it suffices to show that $$ {x}_j\left(p;\overset{\sim }{\pi}\right)\ \ge\ {x}_j\left(p;\pi \right) $$ for all $$ j $$. Note that, for all $$ j $$,
and $$ {\overset{\sim }{\pi}}_0^s={\pi}_0^s $$ and $$ {\overset{\sim }{\pi}}_0^{s^{\prime }}={\pi}_0^{s^{\prime }} $$.
For $$ j=i $$, note that $$ {\beta}_i^s\left(p;\overset{\sim }{\pi}\right)\ \le\ {\beta}_i^s\left(p;\pi \right) $$, and hence $$ {r}_i^s\left(p;\overset{\sim }{\pi}\right)\ \le\ {r}_i^s\left(p;\pi \right)=0 $$, so $$ {r}_i^s\left(p;\overset{\sim }{\pi}\right)=0 $$. Conversely, $$ {\beta}_i^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)\ \ge\ {\beta}_i^s\left(p;\pi \right) $$, and hence $$ {r}_i^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)\ \ge\ {r}_i^{s^{\prime }}\left(p;\pi \right) $$. Therefore,
where the last inequality uses $$ {\overset{\sim }{\pi}}_i^{s^{\prime }}>{\pi}_i^{s^{\prime }} $$ and $$ {\overset{\sim }{\pi}}_0^{s^{\prime }}={\pi}_0^{s^{\prime }} $$.
For $$ j\ne i $$, note that $$ {\beta}_j^s\left(p;\overset{\sim }{\pi}\right)\ge {\beta}_j^s\left(p;\pi \right) $$, and hence $$ {r}_j^s\left(p;\overset{\sim }{\pi}\right)\ge {r}_j^s\left(p;\pi \right) $$. Conversely, $$ {\beta}_j^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)\le {\beta}_j^{s^{\prime }}\left(p;\pi \right) $$, and hence $$ {r}_j^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)\le {r}_j^{s^{\prime }}\left(p;\pi \right)=0 $$, so $$ {r}_j^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)=0 $$. Therefore,
where the second equality uses $$ {\overset{\sim }{\pi}}_j^s={\pi}_j^s $$ and $$ {\overset{\sim }{\pi}}_0^s={\pi}_0^s $$.
For the strict inequality, note that $$ {p}_i>0 $$ implies $$ {\beta}_i^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)>{\beta}_i^s\left(p;\pi \right) $$, as $$ {\overset{\sim }{\pi}}_i^{s^{\prime }}>{\pi}_i^{s^{\prime }}. $$ Since $$ G $$ has positive density on its (interval) support, $$ 0<{r}_i^{s^{\prime }}<1 $$ and $$ {\beta}_i^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)>{\beta}_i^s\left(p;\pi \right) $$ imply $$ {r}_i^{s^{\prime }}\left(p;\overset{\sim }{\pi}\right)>{r}_i^{s^{\prime }}\left(p;\pi \right) $$, and hence $$ {x}_i\left(p;\overset{\sim }{\pi}\right)>{x}_i\left(p;\pi \right) $$ (and, by Theorem 2, $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)>{x}_i\left(p;\pi \right) $$). Finally, since $$ {F}_i $$ has positive density of its (interval) support, $$ 0<{p}_i<1 $$ and $$ {x}_i\left(\overset{\sim }{p};\overset{\sim }{\pi}\right)>{x}_i\left(p;\pi \right) $$ imply $$ \tilde{p}_{i}<{p}_i $$. The $$ j\ne i $$ case is symmetric.
Proof of Proposition 5. Let $$ {r}_i\left({\beta}_i^s\right) $$ (resp., $$ \tilde{r}_{i}\left({\beta}_i^s\right) $$) denote the expected disutility inflicted on the attacker from the defender’s ex-post optimal retaliation strategy at belief $$ {\beta}_i^s $$, when the new weapon is unavailable (resp., available). We claim that $$ {r}_i\left({\beta}_i^s\right)\le \tilde{r}_{i}\left({\beta}_i^s\right) $$ for every $$ {\beta}_i^s $$. To see this, let $$ \Pr \left(a|A\right) $$ denote the probability that the defender retaliates with weapon $$ a $$ given arsenal $$ A $$, and note that
while
and $$ \Pr \left(a=0|A=\left\{0,l,n\right\}\right)\le \Pr \left(a=0|A=\left\{0,l\right\}\right) $$ by revealed preference.
Now, as in the proof of Proposition 1, for every $$ i $$ we have
Hence, shifting up $$ {r}_i\left(\cdot \right) $$ is analogous to shifting down $$ {G}_i\left(\cdot \right) $$, so by the same argument as in the proof of Proposition 3, this decreases $$ {p}_i $$ for all $$ i $$.
Proof of Claim 5. We check that these strategies form an equilibrium. Note that the defender’s posterior beliefs $$ \left({\beta}_i^s\right) $$ are given by
Recall that the defender retaliates if $$ {\beta}_1^s>1-y $$. Hence, when $$ y={y}^L $$ the defender never retaliates, and when $$ y={y}^H $$ the defender retaliates when $$ s\in \left\{1,2\right\} $$. Therefore,
Hence, the attacker attacks whenever he has an opportunity.
Proof of Claim 6. First, note that these retaliation probabilities deter attacks when $$ x={x}^L $$, and yield a higher defender payoff than any strategy that does not deter attacks when $$ x={x}^L $$. So the commitment solution will deter attacks when $$ x={x}^L $$. Note also that it is impossible to deter attacks when $$ x={x}^H $$. So the commitment solution must have $$ {p}_1=\frac{1}{4} $$.
When $$ {p}_1=\frac{1}{4} $$, the defender’s posterior beliefs $$ \left({\beta}_i^s\right) $$ are given by
With these beliefs, ignoring the effect on deterrence, it is not optimal for the defender to retaliate when $$ s\in \left\{0,1\right\} $$. Furthermore, retaliating after $$ s\in \left\{0,1\right\} $$ weakly increases the attacker’s incentive to attack. So the commitment solution involves retaliation only when $$ s=2 $$.
Finally, when $$ s=2 $$, it is profitable for the defender to retaliate when $$ y={y}^H $$ and unprofitable to retaliate when $$ y={y}^L $$. So the solution involves retaliation with probability 1 when $$ y={y}^H $$, and retaliation with the smallest probability required to deter attacks by the $$ x={x}^L $$ type attacker when $$ y={y}^L $$. This solution is given by retaliating with probability $$ \frac{1}{2} $$ when $$ y={y}^L $$.
Proof of Theorem 4. By the defender’s FOC with commitment, for all $$ i\in I $$,
for some constant $$ {\bar{l}}_i\ge 0 $$. Fix a vector $$ \bar{l}={\left({\bar{l}}_i\right)}_{i=1}^n\ge 0 $$, and let $$ \overset{\sim }{p}\left(\bar{l}\right)={\left(\tilde{p}_{i}\left(\bar{l}\right)\right)}_{i\in I} $$ denote a solution to (8). We claim that $$ \tilde{p}_{i}\left(\bar{l}\right)\ge {p}_i $$ for all $$ i $$.
To see this, recall that $$ p $$ is the unique fixed point of the function $$ h:{\left[0,1\right]}^n\to {\left[0,1\right]}^n $$, where $$ {h}_i(p) $$ is the unique solution $$ {p}_i^{\prime } $$ to (7). Similarly, $$ \tilde{p}_{i}\left(\bar{l}\right) $$ is the unique fixed point of the function $$ \overset{\sim }{h}:{\left[0,1\right]}^n\to {\left[0,1\right]}^n $$, where $$ \tilde{h}_{i}(p) $$ is the unique solution $$ {p}_i^{\prime } $$ to
Note that $$ \tilde{h}_{i}(p) $$ is non-decreasing in $$ {p}_j $$ for all $$ j\in I $$. In addition $$ {h}_i(p)\ge \tilde{h}_{i}(p) $$ for all $$ i\in I $$ and $$ p\in {\left[0,1\right]}^n $$. As $$ h $$ and $$ \overset{\sim }{h} $$ are monotone and continuous, and $$ p $$ and $$ \overset{\sim }{p} $$ are the greatest fixed points of $$ h $$ and $$ \overset{\sim }{h} $$, respectively, $$ p={\lim}_{m\to \infty }{h}^m\left(\left(1,\dots, 1\right)\right)\ge \underset{m\to \infty }{\lim }{\overset{\sim }{h}}^m\left(\left(1,\dots, 1\right)\right)=\overset{\sim }{p} $$.
Proof of Proposition 7. Under the assumption $$ \min \left\{{y}_i^s,{y}_i^{s^{\prime }},\tilde{y}_{i}^s,\tilde{y}_{i}^{s^{\prime }}\right\}>0 $$, the defender’s FOC is necessary and sufficient for optimality. Under the FOC,
Hence, $$ \tilde{y}_{i}^{s^{\prime }}\le {y}_i^{s^{\prime }} $$ if and only if
If $$ s $$ and $$ {s}^{\prime } $$ are comparable and $$ s $$ is more informative than $$ {s}^{\prime } $$, then the left-hand side of (9) is greater for $$ s $$ than for $$ {s}^{\prime } $$. Hence, it suffices to show that
Fixing $$ {i}^{\ast } $$ such that $$ {\pi}_i^s={\pi}_0^s $$ and $$ {\pi}_i^{s^{\prime }}={\pi}_0^{s^{\prime }} $$ for all $$ i\ne {i}^{\ast } $$, this is equivalent to
Since $$ \tilde{p}_{i}^{\ast }}\le {p}_{i^{\ast }} $$ (by Proposition 4) and $$ \frac{\pi_{i^{\ast}}^s}{\pi_0^s}\ge \frac{\pi_{i^{\ast}}^{s^{\prime }}}{\pi_0^{s^{\prime }}} $$ (as $$ s $$ is more informative than $$ {s}^{\prime } $$), this inequality is satisfied.
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