In its most basic theoretical form, deterrence is an equation involving two parties, where one party weighs the gain it may make by pursuing a course of action against the price it may pay by the retaliation of the other party. By way of illustration, it is useful to consider two nations, Nation A and Nation B, whose interests collide on a particular issue. If Nation A is known to be considering a course of action contrary to the interests of Nation B, Nation B may signal its intent to retaliate if Nation A does indeed choose that course of action. This leaves Nation A with a decision. First, it must decide whether Nation B has the capability to carry out its threat, and, second, it must decide whether Nation B has the will to carry out its threat. And the deciding factor in both of these judgments is the credibility of Nation B's capability and will to carry out the threat. If, as a result of this cost-benefit calculation, Nation A decides not to go ahead with the course of action, then deterrence has been successful; but if Nation A decides that the gains out-weigh the risk or price, and goes ahead regardless of the threat, then deterrence has failed. This example, though, provides only the barest outline sketch of how deterrence operates in the foreign policy arena.
The simplicity of the theoretical formula belies the complexity of international diplomacy in practice and critics of deterrence have focused on the relative rigidity of the formula compared to the fluidity and unpredictability of international diplomacy. Furthermore, deterrence rests heavily on certain assumptions about the parties involved and the way they will react. First, deterrence rests heavily on the belief that rationality will prevail throughout the process. Not only do the various parties have to behave in fundamentally rational ways, but each party must perceive the other as behaving in a fundamentally rational way. In practice, this leads to a complicated process of perception and counterperception as policymakers and intelligence bodies from each nation estimate and try to influence what the other is thinking.
Critics of deterrence rightly point out that the decisions of political leaders often do not fall into neatly explainable categories and that however carefully the deterrence situation may be controlled, ultimately the decision is a subjective one. In foreign affairs as in everyday life, behavior in deterrence situations is based on instinct as well as reason and this instinctive element can never be confidently discounted. Moreover, the way both parties view the situation can be influenced qualitatively by any number of factors, including irrationality, misperception, poor judgment, or even just wishful thinking. In short, what may seem an unacceptable price to one person or under some circumstances could well be judged by another under different circumstances to be acceptable. Moreover, since history is filled with events that were quite simply unpredictable, it is clearly difficult to account with any certainty for the myriad of accidents, mistakes, and emotions that may play a part in a decision. At best, employing deterrence is an approximation, but in the thermonuclear age, with weapons capable of global annihilation, the stakes are higher than ever before.
Because deterrence is very much in the eye of the beholder, and actual intentions and capabilities are less important than the other side's estimate of those intentions and capabilities, the process of communicating and interpreting information is crucial. Known as signaling, this two-way discourse is open to a wide range of possible scenarios. One involves explicit communications, including public speeches and classified diplomatic correspondence. Another is implicit measures such as partial mobilization or the placing of forces on alert or more subtle measures designed to be detected by foreign intelligence bodies. Ideally, each method is designed to exploit the complex interplay of perceptions and counterperceptions.
Sometimes deterrence fails. Often in the history of international affairs the cost-benefit calculation has led to an unexpected result. In 1904 Russia ignored Japanese warnings that its policies would lead to retaliation, resulting ultimately in the Russo-Japanese War. In 1914 the Central Powers recognized that their policies risked drawing the Entente into war in Europe, but continued regardless. During World War II, Nazi Germany persisted with U-boat attacks on American transatlantic merchant shipping despite President Franklin D. Roosevelt's explicit warnings that it would likely provoke U.S. retaliation. In December 1941, despite U.S. military strength, Japan calculated that its interests were best served by a surprise attack on the U.S. fleet at Pearl Harbor. In mid-1962 Soviet premier Nikita Khrushchev installed nuclear missiles in Cuba despite President John F. Kennedy's explicit warnings that doing so would provoke U.S. retaliation. And in 1991 the Middle East erupted in violence as Saddam Hussein ignored the threat of U.S. intervention should Iraq invade Kuwait.