The Impact of Exposure to Armed Conflict on Risk and Ambiguity Attitudes

Abstract

Exploiting a natural experiment created by the military institutions and the long running civil conflict in Turkey, we study how exposure to armed conflict affects risk and ambiguity attitudes of individuals. We build on our experimental setup with an innovative survey design and an embedded incentive-compatible lab-in-the-field experiment to identify the causal effects of exposure and the mediating pathways for the average male randomly picked from the population. We find that as the degree of exposure to the armed conflict environment increases individuals become more risk tolerant. Having traumatic direct experiences of armed violence, however, creates the opposite effect and renders them extremely risk averse. Such individuals are also more likely to be ambiguity averse. Results nominate preference change as the potential mechanism.

Keywords: Armed Conflict, Natural Experiment, Lab-in-the-field Experiment, Risk Preferences, Ambiguity Preferences, Stability of Economic Preferences

JEL Classification: C90, C93, D01, D74, D81