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Fear and the Response to Terrorism: An Economic Analysis ∗
Gary S. Becker,Yona Rubinstein +1 more
TL;DR: In this paper, the authors aim at explaining why small probability events such as being harmed by terrorism affect peoples' behavior so much, by generating fear, persons' utility and well-being.
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Abstract: In this project we aim at explaining why small probability events such as being harmed by terror affect peoples’ behavior so much. Our argument is based on two corner stones. Terror affects not only the likelihood to be harmed but mainly, by generating fear, persons’ utility and well-being. Yet, fear can be handled and managed by accumulating required mental skills. Like other investments in human capital, it is not a "free-lunch" and it does not pay back the same to anyone. Individuals who had previously consumed large quantities of what turned to be a risky good, invest, overcome fear, and keep their consumption plans unchanged, especially when risk is negligible, while others substitute the risky activity by other consumption plans, falsely appearing as if they overstate the objective probability to be harmed. Data from the US and from Israel support out theory. For instance, using micro data on public bus routes and taxis we find that suicide bomber attacks carried out on buses have a substantial negative average effect on bus rides and positive effect on the use of taxis. By disaggregating the population into low and high frequency users we find no effect of suicide bomber attacks
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Citations
Problematizing the internationalization decision: terrorism‐induced risk
TL;DR: In this paper, a conceptualization of the internationalization decision confronted by a firm in an environment of terrorism-induced risk is presented, and the most attractive opportunities set is traced to show that the frontier of attractive opportunities is constrained in the with-terrorism case.
Terrorist Attacks, Analyst Sentiment, and Earnings Forecasts
TL;DR: Findings indicate that exposure to extreme negative events affects the behavior of information intermediaries and the information dissemination process in financial markets.
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Terrorism and Human Capital at Birth: Bomb Casualties and Birth Outcomes in Spain
TL;DR: In utero exposure to terrorism early in pregnancy, as measured by the number of bomb casualties in the mother's province of residence in the first trimester of pregnancy, has detrimental effects on birth outcomes: in terms of average birth weight, prevalence of low birth weight and fraction of "normal" babies.
References
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Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
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Amos Tversky,Daniel Kahneman +1 more
- 01 Jan 1974
TL;DR: The authors described three heuristics that are employed in making judgements under uncertainty: representativeness, availability of instances or scenarios, and adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
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Prospect Theory: An Analysis of Decision Under Risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: Prospect Theory as mentioned in this paper is an alternative theory of individual decision making under risk, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights.
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The Framing of Decisions and the Psychology of Choice
Amos Tversky,Daniel Kahneman +1 more
TL;DR: The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes produce predictable shifts of preference when the same problem is framed in different ways.
Advances in prospect theory: cumulative representation of uncertainty
Amos Tversky,Daniel Kahneman +1 more
TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
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