Prospect Theory and Terrorist Choice

Abstract

We study terrorist choice from the perspective of economics and psychology. Using RAND-MIPT data about the injuries and fatalities inflicted by different terrorist attack methods, we compute sets of preference orderings over the attack methods using prospect theory. This incorporates reference point dependence, risk seeking in the domain of losses, risk aversion in the domain of gains, non-linear preferences and loss aversion into an analysis of terrorist behaviour. We pay particular attention to the importance of a reference point in the context of ‘copycat’ acts of violence and the influence of loss aversion on the choice of attack method. Our results provide an indication of the types of attack methods that would be chosen by a terrorist whose decision-making process is described by prospect theory and who might, for example, seek to emulate or surpass the actions of a predecessor.

JEL classification codes:

• D03
• D74
• H56
• K42

Key words:

• prospect theory
• terrorism
• terrorist choice
• copycat acts