Loss aversion, risk acceptance, and powerful leaders' deviations from rationality. A prospect-theoretical application to the American escalation of the Vietnam War.

Civil wars, a global pandemic, climate change, riots and terrorist attacks: the list of current crises is long, and it keeps on getting longer. It is, therefore, vitally important to understand powerful, yet oftentimes irrational leaders’ decision-making in crisis situations under risk and uncertainty. With this thesis, I aim at doing just that. More precisely, I apply Kahneman and Tversky’s Prospect Theory, which is the most influential descriptive theory of decision-making under risk, to the single-case study of former U.S. President Lyndon Johnson’s escalation of the Vietnam War in 1965. The applied research method is a qualitative content analysis of recently de-classified U.S. government documents and public speeches. I show successfully that Prospect Theory’s fundamental concepts of loss aversion and risk acceptance, provide a substantial explanatory value of leader’s irrational deviations from pursuing the highest expected utility, when making decisions in crisis situations. I conclude that the understanding of a past leader’s decision-making process, that this thesis offers, can help understand present leaders’ decision-making behavior in current crises, and may even aid to prevent future crises.