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Fear and the Response to Terrorism: An Economic Analysis

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  • Gary S. Becker
  • Yona Rubinstein

Abstract

This paper offers a rational approach to the economics and psychology of fear and provides empirical evidence that supports our theory. We explicitly consider both the impact of danger on emotions and the distortive effect of fear on subjective beliefs and individual choices. Yet, we also acknowledge individuals' capacity to manage their emotions. Though costly, people can learn to control their fear and economic incentives affect the degree to which they do so. Since it does not pay back the same returns to everyone, people will differ in their reaction to impending danger. We then empirically examine the response of Israelis to terror incidents during the "Al-Aqsa" Intifada. Consistent with our theory, the overall impact of attacks on the usage of goods and services subject to terror attacks (e.g. bus services, coffee shops) reflects solely the reactions of occasional users. We find no impact of terrorist attacks on the demand for these goods and services by frequent users. Education and the exposure to media coverage also matters. We find a large impact of suicide attacks during regular media coverage days, and almost no impact of suicide attacks when they are followed by either a holiday or a weekend, especially among the less educated families and among occasional users.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1079.

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Date of creation: Sep 2011
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Handle: RePEc:cep:cepdps:dp1079

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Economics; psychology; education;

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References

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  15. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic Consequences of Terror: Theory and the Case of Israel," CEPR Discussion Papers 4427, C.E.P.R. Discussion Papers.
  16. Moses Shayo & Asaf Zussman, 2011. "Judicial Ingroup Bias in the Shadow of Terrorism," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1447-1484.
  17. Magat, Wesley A & Viscusi, W Kip & Huber, Joel, 1988. " Consumer Processing of Hazard Warning Information," Journal of Risk and Uncertainty, Springer, vol. 1(2), pages 201-32, June.
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