Do Terrorist Attacks Make Inventors More Risk Taking?
49 Pages Posted: 3 Feb 2019
Date Written: January 24, 2019
Psychology theory posits that negative shocks may create fear and/or anger in people and that, subsequently, people with fear become more pessimistic and perceive higher risk on unrelated fields, whereas people with anger become more optimistic in risk assessments. Using terrorist attacks in the U.S. as negative shocks, we test this theory on inventors, the most creative and precious personnel in many firms. We use the difference-in-difference approach and find that big terrorist attacks make local inventors — who live within a 100-mile radius of the attacked areas — less innovative, but that small attacks make local inventors more innovative. The effects are stronger for riskier innovation, which helps us identify the risk-taking channel through which inventors are affected by terrorist attacks. Furthermore, inventors living in more risk-taking environments react more (less) strongly to small (big) terrorist attacks. We also find that inventors affected by big terrorist attacks are more likely to move to places without any terrorist attack history, while there is no such effect for small terrorist attacks. Thus, in line with the psychology theory, our study suggests that large terrorist attacks induce fear, causing inventors to make risk-averse choices, whereas small attacks induce anger and anger leads inventors to become more risk taking.
Keywords: Terrorist Attacks; Inventor Productivity; Innovation; Innovation Strategy
JEL Classification: G39, O31
Suggested Citation: Suggested Citation