Asymmetric Information in Combating Terrorism: Is the Threat Just a Bluff

This paper explores the mitigation of terrorism risks based on dynamic interactions between terroristorganizations and governments with asymmetric information. Uncertainties in the objectives and capabilities of terrorists complicate defensive resource allocations for the public safety. Simultaneous and sequential game models are developed to investigate the asymmetric information effects on defensive strategies and terrorism risk analysis. The government can detect explicit or implicit signals to support decisionsand update its beliefs according to a Bayesian law after it receives a terrorist threat. Analyses of the equilibrium for the signaling game indicate that the optimal government defensive strategy will significantly impact the actions of the terrorists. Asymmetric information is shown to play a crucial role in security decision making and terrorism risk mitigation, with the optimal defensive strategy changing according to terrorists andgovernment capabilities.