Violence, Emotional Distress and Induced Changes in Risk Aversion among the Displaced Population in Colombia

Violence and civil conflicts entail devastating consequences for their victims. Research from neuroscience and social psychology suggests that the incidence of emotional distress prevalent after episodes of victimization could induce changes in the risk attitudes of victims. This paper draws on the psychology literature on the determinants of behavior under uncertainty, to address how intense episodes of violence and forced displacement change risk preferences. Within the context of the Internally Displaced Population in Colombia, this paper brings together data from an economic experiment designed to measure risk aversion, with data from a living standards survey and a psychological questionnaire on chronic stress. In doing so, it makes an effort to provide a psychological basis underlying why and how preferences change after a violent shock. To address endogeneity concerns that arise from possible ‘selection into violence’ and ‘selection into displacement’, the research design focuses on episodes of massive displacement where violence is indiscriminate and the decision to migrate is exogenous to household characteristics and preferences. To identify the causal effect of violence and forced displacement on risk attitudes, massively displaced communities were matched to a control group of communities from the same regions, which were as likely to receive the shock of violence but that in practice were not affected by it. Results indicate that forced displacement, the intensity of violence, and the prevalence of emotional trauma induce a considerable shift towards more a risk averse behavior. While this effect does not seem to be permanent, results suggest that several years are needed for risk attitudes to return to their pre-displacement levels. The magnitude and durability of such behavioral change can therefore hinder the economic recovery of the victims of force displacement and have transcending impacts on household welfare and poverty in the long run. This paper thus provides evidence on a different channel through which victims of civil conflicts can be driven into poverty. ξ Agricultural and Resource Economics, UC Davis; amoya@ucdavis.edu. I would like to thank Michael R. Carter, Hillary Hoynes, Travis Lybbert, Alessandra Cassar, Ana María Ibañez, Juan Camilo Cárdenas, Joanna Parks, Carmen Elisa Florez and members of the ELCA committee at Universidad de los Andes, as well as participants at seminars at the University of San Francisco and UC Davis for useful comments, suggestions, and support. Many people helped me throughout the field-work including Doris Giraldo, fathers Javier Marquez and Miraldo Camargo, Alvaro Montes, Andrés Urraza, Eduardo Navarro, Maria Paula Velez, and Lucia Tamara; this project and this paper would not have been possible without them. The Pacific Rim Research Dissertation Grant, Programa de Dinamicas Territoriales – RIMISP, and the Henry A. Jastro Award provided generous funding to collect the data, while the Harry Frank Guggenheim Foundation provided a dissertation fellowship that allowed me to write this paper.