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Wei_Dai comments on Thomas C. Schelling's "Strategy of Conflict" - Less Wrong
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Given that there is a nontrivial chance that the policy won't be implemented reliably, and partially because of that the other side will fail to fear it properly, the expected utility of trying to implement this policy seems hideously negative (that is, there is a good chance a city will be nuked as a result, after which the policy crumbles under the public pressure, and after that everyone develops the technology).
Ok, granted, but was the expected utility less than allowing everyone to develop nuclear weapons and then using a policy of MAD? Clearly MAD has a much lower utility if the policy failed, so the only way it could have been superior is if it was considered much more reliable. But why should that be the case? It seems to me that MAD is not very reliable at all because the chance of error in launch detection is high (as illustrated by historical incidents) and the time to react is much shorter.
The part you didn't quote addressed that: once this policy doesn't work out as planned, it crumbles and the development of nukes by everyone interested goes on as before. It isn't an alternative to MAD, because it won't actually work.
Well, you said that it had a "good chance" of failing. I see your point if by "good chance" you meant probability close to 1. But if "good chance" is more like 50%, then it would still have been worth it. Let's say MAD had a 10% chance of failing:
Then EU(MAD) < EU(NH) if U(world destruction) < 10 U(one city destroyed).