Prospect Theory and US Rejection of Iran's Grand Bargain in 2003.

Since 1979, the US has said that its problems with Iran are because of three issues: pursuit of WMD, opposing of Arab- Israeli peace process and, Iran’s support of terrorism. One would assume that if Iran proposes a deal accepting to change its policies in these matters, the US would at least consider it seriously. However, this is exactly what the US did not do in 2003. In 2003, Iran sent a proposal to the US proposing: full transparency in its nuclear program, stop of any support to Palestinians and accepting the two state solution in the M.E. In return Iran’s main request was mutual respect. The question is while Iranian proposal was answering all the US requests, why didn’t the US even bother to answer it? This paper tries to answer this question by using the prospect theory as its analytic tool. The main question of this paper is: “How can prospect theory explain the US behavior in rejecting Iran’s proposal?” Was it because of a shift in reference point of US towards Iran? Was it because, while in the domain of gain the US did not want to take risky steps? Or was it because of the framing of the proposal? The answer to these questions are important because: a) It is another test for prospect theory and, b) It will help the future negotiations between Iran and the US. For, Iran can never propose a better deal to US. Therefore, it is very important to know why it did not work. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]