The Adversarial Discount - AI, Signal Correlation, and the Cybersecurity Arms Race

Abstract: We study a contest-theoretic model of adversarial investment in which an attacker and a defender allocate resources to AI-augmented capabilities across multiple attack surfaces. The attacker's investment operates through two channels: it amplifies offensive potency unconditionally and erodes defensive effectiveness conditionally, generating an adversarial discount that deepens endogenously with the defender's own investment. We derive a closed-form arms race ratio decomposing the relative marginal effectiveness of offensive and defensive investment into six structural primitives and establish equilibrium uniqueness and global convergence under a continuous best-response dynamic. The central result concerns signal cross-correlation, the degree to which threat intelligence on one surface informs detection on another. With full cross-correlation, the arms race ratio is independent of the number of attack surfaces: the attacker's structural advantage from surface proliferation is completely neutralized. Under the benchmark full-dilution case, without cross-correlation, per-surface defense effectiveness vanishes as the attack surface grows. Extending the analysis to heterogeneous defenders facing an attacker who targets by expected value, we argue that the model points to a dual inefficiency: overinvestment in private defense (a zero-sum redirective externality) and underinvestment in shared signal correlation (a public good). These formal results, together with public-good reasoning outside the base model, characterize when collective information aggregation can dominate private capability investment as the decisive margin in adversarial contests.