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

58 Pages Posted: 16 Jun 2012 Last revised: 9 Feb 2018

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 4, 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.

Keywords: Psychology, trust, culture, terrorist, terrorism, GDP, Madrid Train Bomb, London Metro

JEL Classification: E20, K42, O10

Suggested Citation

Ahern, Kenneth Robinson, The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks (February 4, 2018). Available at SSRN: https://ssrn.com/abstract=2085013 or http://dx.doi.org/10.2139/ssrn.2085013

Kenneth Robinson Ahern (Contact Author)

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

701 Exposition Blvd
Los Angeles, CA 90089
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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