User:Albatross17/sandbox

A threat, and its counterpart – a commitment, are both defined by American economist and Nobel prize winner, T.C. Schelling, who stated that if: “A announces that B’s behaviour will lead to a response from A. If this response is a reward, then the announcement is a commitment; if this response is a penalty, then the announcement is a threat.”

While a player might make a threat, it is only deemed credible if it serves the best interest of the player. In other words, the player would be willing to carrying through with the action that is being threatened regardless of the choice of the other player. This is based on the assumption that the player is rational.

Examples of non-credible threats

Market Entry Game

Economics is great

Player 2 threatening action a if Player 1 chooses action B is a non-credible threat. This is because if Player 1 chooses action B, Player 2 will choose action b as this results in a higher payoff than action a for Player 2.