The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks

58 Pages Posted: 21 Feb 2018 Last revised: 26 Jun 2022

See all articles by Kenneth R. Ahern

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2018

Abstract

Terrorist attacks influence economic growth and individual psychology. However, identifying the direct effect of terrorism on economics and psychology is difficult because institutions also change in response to terrorist attacks. This paper controls for institutional responses to terrorist attacks by studying people who live beyond the institutions' borders, but are exposed to the attacks. I find that terrorism leads to declines in trust, subjective well-being, and the importance of creativity and freedom. However, at the macro-level, terrorism leads to increases in economic output and household income. These results are consistent with a growing literature that finds counterintuitive responses to trauma.

Suggested Citation

Ahern, Kenneth Robinson, The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks (February 2018). NBER Working Paper No. w24331, Available at SSRN: https://ssrn.com/abstract=3127072

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

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HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

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