How did risks of the Iran war get misread? Kahneman and Tversky’s Prospect Theory may have answers

As the US-Iran war enters a fragile two-week ceasefire, with no clear endgame in sight, one may well ask how and why the world has reached this situation. Wars are rarely accidents.At their core, they are bets, and can hence be viewed through the lens of risk—not in a vague rhetorical sense, but by means of rigorous psychological analysis of the kind that forms part of Daniel Kahneman and Amos Tversky’s Prospect Theory, particularly its four-fold pattern of risk attitudes.This framework maps human behaviour into four quadrants based on whether an outcome involves gains or losses and whether its probability is high or low.

Applied to the US-Israel-Iran war, it reveals how every major actor is behaving as the theory predicts and why such predictable behaviour is not the same as wisdom. When there is a high probability of large gains, Prospect Theory predicts people become risk-averse, preferring to lock in what is almost certain rather than gamble for more.For the US, the military calculus entering 2026 seemed to offer high-probability gains.

Iran’s defences had been weakened by the 12-day Israeli-US campaign of June 2025. The International Atomic Energy Agency had documented Iran’s uranium enrichment approaching weapons-grade, providing a pretext.The window for the US to lock in prospective gains was real, with Iran seeming barely months away from nuclear-breakout capability.

The question was not whether to act, but when to take a sure gain. On 28 February, war began, setting in motion dynamics that have now paused, but not resolved.If the likelihood of a bad outcome is high, however, the psychology flips: people seek risk.