The loosing side will retreat towards the region with the highest retreat interest.
The losing side should retreat to the area of highest interest. "Retreat interest" is measured in points as per these lines:
ctlRetreatAdjCity = 5 // Interest in retreating toward a region with a city (per level)
ctlRetreatAdjFort = 30 // Interest in retreating toward a region with a fort (per level)
ctlRetreatAdjDepot = 25 // Interest in retreating toward a region with a depot (per level)
ctlRetreatLandLink = 10 // Interest in retreating toward a region, value per land link
ctlRetreatPrevSubSpaceCoeffH = 250 // Coefficient applied to the interest if the region is the one where we are coming from
cltRetPenaltyPerNmySU = 4 // retreat penalty (in interest pts) for each nmy SU in retreating region
So, basiclly, the units will retreat towards the region from which they came, unless very strong enemy force is present there.
Lvl 10 city with a fort and a depot on a land link wil draw 50+30+25+10=115 retreat interest points.
If the city is besieged with an enemy force of 20 regiments/batteries, it will lower retreat interest points by 20*4=-80 retreat points.
So, there would be a total of 35 retreat "interest" points for the region in question
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