Reputation and Conflict

We study reputation in conflict games. The players can use their first round actions to signal their types. With strategic substitutes, a reputation for being hostile is desirable, because it causes the opponent to be more dovish in period two. Dovish behavior in round one is a sign of weakness, which makes the opponent more hawkish. With strategic substitutes, neither player wants to be seen as weak. Therefore, the desire to build a reputation for toughness will lead to increased
hawkishness in period one. This can make both players worse off in the stage where they build reputation. With strategic complements, the situation is reversed. A reputation for being hostile causes the opponent to become more hawkish, which is undesirable.