How can policymakers calibrate their actions’ impact on other actors during diplomatic and military signalling, in order to manage inadvertent escalation? To manage escalation, or to conduct deterrence operations, requires anticipating how others will decide to respond to our actions. Effective deterrence and escalation management thus crucially depend on understanding human decision-making. A core insight from neuroscience over the past two decades is that when an event occurs, its impact on decision-making is crucially modulated by its associated “prediction error”. This prediction error can be simply defined as the difference between the event identified, and what was expected. The bigger the associated prediction error, the bigger the psychological impact of the action. I discuss historical cases showing the far-reaching impacts of prediction error throughout military and diplomatic confrontations – and how these can be captured by simple prediction error framework that also subsumes many important existing strategic concepts. These features make operationalization attractive and feasible for escalation and deterrence analysis, which I illustrate in a near-term Sino-U.S. escalation scenario.