Adversarial Risk Analysis
A relatively new area of research, adversarial risk analysis (ARA) informs decision making when there are intelligent opponents and uncertain outcomes. The book develops methods for allocating defensive or offensive resources against intelligent adversaries. Banks and his co-authors provide example throughout to illustrate the application of the ARA approach to a variety of games and strategic situations. The book shows decision makers how to build Bayesian models for the strategic calculation of their opponents, enabling decision makers to maximize their expected utility or minimize their expected loss.
This new approach to risk analysis asserts that analysts should use Bayesian thinking to describe their beliefs about an opponent's goals, resources, optimism, and type of strategic calculation, such as minimax and level-k thinking. Within that framework, analysts then solve the problem from the perspective of the opponent while placing subjective probability distributions on all unknown quantities. This produces a distribution over the actions of the opponent and enables analysts to maximize their expected utilities.