Violence, psychological trauma, and risk attitudes: Evidence from victims of violence in Colombia

Traumatic experiences can alter individuals' behavior and deplete their ability to make economic decisions. In this article, I analyze the effects of violence on risk attitudes. For this purpose, I sampled a group of victims of violence in Colombia and collected data on the severity and temporal proximity of their exposure to violence and on their symptoms of psychological trauma. I find that more severe violence brings about higher levels of risk aversion in the gains and ambiguity domains but that the behavioral effect is not permanent. I also find that the effect is driven by severe anxiety disorders, which is consistent with studies in psychology. The results suggest that violence can affect poverty dynamics through a behavioral channel. (JEL: D1; C9; O1; I1; I3).