Violence and Risk Preference: Experimental Evidence from Afghanistan

Abstract

We investigate the relationship between violence and economic risk preferences in Afghanistan combining: (i) a two-part experimental procedure identifying risk preferences, violations of Expected Utility, and specific preferences for certainty; (ii) controlled recollection of fear based on established methods from psychology; and (iii) administrative violence data from precisely geocoded military records. We document a specific preference for certainty in violation of Expected Utility. The preference for certainty, which we term a Certainty Premium, is exacerbated by the combination of violent exposure and controlled fearful recollections. The results have implications for risk taking and are potentially actionable for policymakers and marketers. (JEL A12, C91, D12, D74, D81, O12, O17)

Beyond conflict: Long-term labour market integration of internally displaced persons in post-socialist countries

“…Furthermore, there is evidence that the psychological trauma related to conflict and displacement lowers aspirations and increases risk aversion, leading to overly pessimistic prospects of upward mobility, perceptions of inability to move out of poverty, and suboptimal decisions, for example in the choice of agricultural activity (Akhunzada et al, 2015;Bundervoet, 2007;Callen et al, 2014;Moya and Carter, 2014;Moya, 2017). Implicitly, this would affect the labour market integration of the forcibly displacedone could expect IDPs to have lower willingness to find work, upgrade jobs and undertake training.…”

Violence, Psychological Disorders, and Induced Changes in Risk Attitudes in Colombia

“…Intuitively, in a world characterized by incomplete insurance mechanisms and significant levels of risk and uncertainty, higher levels of risk aversion induce inefficient allocations of resources by making individuals reluctant to reduce their own consumption in order to make the investments 2 Accordingly, the cognitive driven model of behavior under uncertainty state that decisions are driven by the desirability of the outcomes, the beliefs about their likelihood, and risk preferences, which for a long time were assumed to be exogenously determined and seemingly uninteresting constructs. While recent research has shown that risk preferences vary across individuals, cultures, and circumstances, the prevailing view is that these are driven by different factors such as long-term evolutionary processes, genetic markup and heritability, changes in beliefs, differences in the wealth space, and frames and reference points, and therefore do not contest the cognitive-driven framework (Carpenter et al, 2011;Cárdenas & Carpenter, 2008;Cesarini et al, 2009;Doss et al, 2008;Henrich et al, 2001;Kahneman & Tversky, 1979;Netzer, 2009;Sprenger, 2011). However, most of the individual variation in risk attitudes is still unaccounted by such factors.…”

War and conflict in economics: Theories, applications, and recent trends

“…Individual altruism, risk-seeking, and impatience all increase in a community's exposure to violence, an important consideration to post-conflict governments seeking to encourage investment and provide public goods. In a similar analysis, Callen et al (2014) demonstrates increasing preferences for certainty among Afghani individuals exposed to violence.…”

“…For example, modelers have assumed that some individuals gain additional utility from the simple fact of winning, independent of the prize won, as a potential account of high conflict expenditures (see Cox et al (1988) for a theoretical treatment, Goeree et al (2002) for an empirical strategy to identify the joy of winning, and Sheremeta (2010) for an experimental method directly measuring joy of winning). In a related direction, increasing attention has been paid to the behavioral consequences of conflict, as for example, in recent evidence that conflict can induce a preference for certainty and/or encourage cooperation (Callen et al, 2014;Bauer et al, 2016).…”