Many citizens of the developing world experience trauma in their lives that have lasting psychological and physical effects., Research in developed countries suggests that traumatic events can be linked to more conservative investing behavior and other risk-averse decision-making., In a low-resource setting, risk aversion may affect citizen interest in and use of micro-loans or other financial tools often targeted at the poor. This study examines the relationship between trauma and risk aversion in the context of a violence-affected developing nation.
While the US-led war in Afghanistan has been marked by unrest, Afghanistan’s history with violence dates back more than thirty years. Since the military coup of 1978 and the Soviet invasion of 1979, Afghanistan has been the subject of large-scale violence, civil war, and ethnic cleansing. These events have greatly affected its citizens, and make the country ripe for the study of the effects of violence on citizens subjected to it. Since 2001, the International Security Assistance Force, a military body, has collected geographically precise data on violent attacks.
To empirically test the effect of trauma on individual risk preferences, researchers employed a combination of experimental methods. The study team randomly selected respondents living within polling center catchment areas from the 2010 Afghan election. The analysis included 816 participants from 278 polling precincts. The surveys took place in December, three months after the election.
The researchers identified individuals’ risk preferences by asking participants to choose between a series of ten hypothetical payoff questions. Below is a table of the tasks and options, with accompanying probabilities. Option A is varied between the two tasks to measure differences in risk aversion when the outcome choice is either fixed or variable (certain or uncertain). The probability of the 450 Afghaniss in option B started at only 10 percent, but became progressively more likely with each question. The point at which participants switched from Option A to Option B conveyed their proclivity to take risks; more risk-prone individuals would switch sooner, and more risk-averse individuals would switch later.
|Task 1 (Uncertain)||Task 2 (Certain)|
|Option A||150 or 450 Afghanis (50% chance each)||150 Afs|
|Option B||450 or 0 Afs (Variable Probability, 0-100%)||450 or 0 Afs (Variable Probability)|
Before participating in the test, participants received a psychological primer meant to recall emotion. Enumerators asked participants to recall and describe an event in the past year. Participants were randomly assigned to describe an event that caused them fear, happiness, or any event (to serve as a neutral recollection).
Researchers incorporated 2002-2010 data from the International Security Assistance Task Force to measure exposure to violence for each individual, based on their geography.
Results and Policy Implications
Participants who recalled a fearful episode in the priming stage have higher certainty premiums; they switched to task two later. In addition, the more intense or recent the exposure to violence at the polling station level, the more likely the participant was to be risk averse.
Individuals under certainty (task 2) switched to the “riskier” option B later than they did under uncertainty (task 1) indicating greater risk aversion under certainty; this high certainty premium – the potential gain foregone in order to ensure certainty – runs contrary to some economic theories, which posit that an individual will act depending on the probability of the occurrences.
Those affected by trauma in the developing world are at risk of psychological effects that can characteristically alter their decision-making behavior. Changes in behavior are not seen across all exposed individuals, but rather when those individuals are primed to recall the event. This is an important lesson for policymakers and organizations that seek to serve violence-afflicted populations. Risk preferences can inform myriad behavioral interventions in order to better serve those who may need the services most.
 Boscarino, Joseph. 2006. “Posttraumatic Stress Disorder and Mortality Among US Army Veterans 30 Years After Military Service”. Annals of Epidemiology 16(4): 248-56.
 Neria, Yuval, Arijit Nandi, and Sandro Galea. "Post-traumatic stress disorder following disasters: a systematic review." Psychological medicine 38.04 (2008): 467-480.
 Malmendier and Nagel (2011)
 Lerner and Keitner (2001)
Photo: UK Ministry of Defence. A soldier with the Argyll and Sutherland Highlanders, 5th Battalion The Royal Regiment of Scotland, talks to local children while carrying out searches on compounds in Helmand Province, Afghanistan