Abstract
When a terrorist group’s aspirations far exceed the outcomes that can be expected to result from any of the available attack methods, an outcome below the terrorist group’s aspiration level is inevitable. A primary prediction of SP/A theory when applied to the study of terrorist behaviour is that when losses are inevitable the terrorist group will be risk averse and inclined to defer further action until expected outcomes improve, new attack method innovations are developed or the memory of the event that shaped aspirations has faded sufficiently that the aspiration level can be ‘reset’. This complements existing predictions of loss aversion and risk seeking behaviour over the domain of avoidable losses and provides a starting point for developing explanations for patterns of behaviour that are observed in the terrorism context, including pauses in violence, even during brutality contests, and time-lags between terrorist attacks.
References
Abdellaoui, M. 2000. Parameter-free Elicitation of Utility and Probability Weighting Functions. Management Science, 46, 1497-1512.Search in Google Scholar
Allais, M. 1953. Le Comportement de l’Homme Rationnel devant le Risque, Critique des Postulats et Axiomes de l’Ecole Americaine. Econometrica, 21, 503-546.Search in Google Scholar
Barberis, Nicholas C. 2013. Thirty Years of Prospect Theory in Economics: A Review and Assessment. Journal of Economic Perspectives, 27, 173-96.Search in Google Scholar
Battalio, R.C., Kagel, J.H. & MacDonald, D.N. 1985. Animals’ Choices over Uncertain Outcomes: Some Initial Experimental Results. American Economic Review, 75, 597-613.Search in Google Scholar
Bell, D.E. 1982. Regret in Decision-Making Under Uncertainty. Operations Research, 30, 961-981.Search in Google Scholar
Berns, G.S., Capra, C.M., Chappelow, J., Moore, S. & Noussair, C. 2008. Nonlinear Neurobiological Probability Weighting Functions for Aversive Outcomes. NeuroImage, 39, 2047-2057.Search in Google Scholar
Birnbaum, M.H., Patton, J.N. & Lott, M.K. 1999. Evidence against Rank-Dependent Utility Theories: Tests of Cumulative Independence, Interval Independence, Stochastic Dominance and Transitivity. Organisational Behaviour and Human Decision Processes, 77, 44-83.Search in Google Scholar
Bosch-Doménech, A. & Silvestre, J. 2006. Reflections on Gains and Losses: A 2×2×7 Experiment. Journal of Risk and Uncertainty, 33, 217-235.Search in Google Scholar
Bruhin, A., Fehr-Duda, H. & Epper, T. 2010. Risk and Rationality: Uncovering Heterogeneity in Probability Distortion. Econometrica, 78, 1375-1412.Search in Google Scholar
Caruso, R. & Schneider, F. 2013. Brutality of Jihadist Terrorism: A Contest Theory Perspective and Empirical Evidence for the Period 2002 to 2010. Journal of Policy Modeling, 35, 685-696.Search in Google Scholar
Camerer, C.F. & Ho, T.H. 1994. Violations of the Between-ness Axiom and Non-Linearity in Probability. Journal of Risk and Uncertainty, 8, 167-196.Search in Google Scholar
Das, S., Markowitz, H., Scheid, J. & Statman, M. 2010. Portfolio Optimisation With Mental Accounts. Journal of Financial and Quantitative Analysis, 45, 311-334.Search in Google Scholar
Diecidue, E. & van de Ven, J. 2008. Aspiration Level, Probability of Success and Failure and Expected Utility. International Economic Review 49, 683-700.Search in Google Scholar
Ellsberg, D. 1954. Classic and Current Notions of Measurable Utility. Economic Journal, 64, 528-556.Search in Google Scholar
Ellsberg, D. 1961. Risk, Ambiguity and the Savage Axioms. Quarterly Journal of Economics, 75, 643-669.Search in Google Scholar
Enders, W. & Sandler, T. 2002. Patterns of Transnational Terrorism, 1970-1999: Alternative Time-Series Estimates. International Studies Quarterly, 46, 145-165.Search in Google Scholar
Fishburn, P.C. 1989. Retrospective on the Utility Theory of von Neumann & Morgenstern. Journal of Risk and Uncertainty, 2, 127-158.Search in Google Scholar
Frey, B. & Luechinger, S. 2003. How to Fight Terrorism: Alternatives to Deterrence. Defence and Peace Economics, 14, 237-249.Search in Google Scholar
Gonzalez, R. & Wu, G. 1999. On the Shape of the Probability Weighting Function. Cognitive Psychology, 38, 129-166.Search in Google Scholar
Hadar, J. and Russell, W.R., 1969. Rules for Ordering Uncertain Prospects, American Economic Review, 59, pp.25-34.Search in Google Scholar
Hanoch, G. and Levy, H., 1969. The Efficiency Analysis of Choices Involving Risk, Review of Economic Studies, 36, pp.335-346.10.2307/2296431Search in Google Scholar
He, X.D. & Zhou, X.Y. 2013. Hope, Fear and Aspirations. Mathematical Finance, 26, 3-50.Search in Google Scholar
Kahneman, D. & Tversky, A. 1979. Prospect Theory: An Analysis of Decision Under Risk. Econometrica 47, 263-292.Search in Google Scholar
Kataoka, S. 1963. A Stochastic Programming Model. Econometrica, 31, 181-196.Search in Google Scholar
Kolmogorov, A.N. 1933. Grundbegriffe der Wahrscheinlichkeitsrechnung. Springer, Berlin.10.1007/978-3-642-49888-6Search in Google Scholar
Landes, W. 1978. An Economic Study of U.S. Aircraft Hijacking: 1961 to 1976. Journal of Law and Economics, 21, 1-31.Search in Google Scholar
Levy, H., 1992. Stochastic Dominance and Expected Utility: Survey and Analysis, Management Science, 38, pp.555-593.10.1287/mnsc.38.4.555Search in Google Scholar
Loomes, G. & Sugden, R. 1982. Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty. Economic Journal, 92, 805-824.Search in Google Scholar
Lopes, L.L. 1987. Between Hope and Fear: The Psychology of Risk. Advances in Experimental Social Psychology, 20, 255-295.Search in Google Scholar
Lopes, L.L. 1995. An Information Processing Perspective on Choice. In Decision Making From a Cognitive Perspective. Edited by Douglas Medin, Jerome Busemeyer & Reid Hastie, Academic Press, San Diego, California.Search in Google Scholar
Lopes, L.L. 2013. Goals and the Organisation of Choice Under Risk. Working Paper, University of Iowa.Search in Google Scholar
Lopes, L.L. & Oden, G.C. 1999. The Role of Aspiration Level in Risky Choice: A Comparison of Cumulative Prospect Theory and SP/A Theory. Journal of Mathematical Psychology, 43, 286-313.Search in Google Scholar
Machina, M.J. 1982. Expected Utility Analysis Without the Independence Axiom. Econometrica, 50, 277-323.Search in Google Scholar
Machina, M.J. 1987. Choice Under Uncertainty: Problems Solved and Unsolved. Journal of Economic Perspectives, 1, 121-154.Search in Google Scholar
Markowitz, H.M. 1952. Portfolio Selection. Journal of Finance, 77-91.Search in Google Scholar
Meyer, J., 1977a. Further Application of Stochastic Dominance to Mutual Fund Performance, Journal of Financial and Quantitative Analysis, 12, pp.235-242.10.2307/2330432Search in Google Scholar
Meyer, J., 1977b. Choice Among Distributions, Journal of Economic Theory, 14, pp.326-336.10.1016/0022-0531(77)90134-XSearch in Google Scholar
Neumann, J. von & Morgenstern, O. 1947. Theory of Games and Economic Behaviour, Princeton University Press, Princeton, NJ.Search in Google Scholar
Phillips, P.J. 2009. Applying Modern Portfolio Theory to the Analysis of Terrorism: Computing the set of Attack Method Combinations from which the Rational Terrorist Group will Choose in Order to Maximise Injuries and Fatalities. Defence and Peach Economics, 20, 193-213.10.1080/10242690801923124Search in Google Scholar
Phillips, P.J. 2013. In Pursuit of the Lone Wolf Terrorist: Investigative Economics and New Horizons for the Economic Analysis of Terrorism, Nova Science, New York, New York.Search in Google Scholar
Phillips, P.J. 2016. The Economics of Terrorism. Taylor & Francis (Routledge), Abingdon, Oxon & New York, New York.Search in Google Scholar
Phillips, P.J. & Pohl, G. 2014. Prospect Theory and Terrorist Choice. Journal of Applied Economics, 17, 139-160.Search in Google Scholar
Phillips, P.J. & Pohl, G. 2017. Terrorist Choice: A Stochastic Dominance and Prospect Theory Analysis. Defence and Peace Economics 28, 150-164.Search in Google Scholar
Pohl, G. 2015. Media and Terrorist Choice: A Risk-Reward Analysis. Journal of Applied Security Research, 10, 60-76.Search in Google Scholar
Pohl, G. 2017. Terrorist Choice and the Media. PhD Dissertation, University of Southern Queensland, Unpublished. Search in Google Scholar
Prelec, D. 1998. The Probability Weighting Function. Econometrica, 66, 497-527.Search in Google Scholar
Quiggin, J. 1982. A Theory of Anticipated Utility. Journal of Economic Behaviour and Organisation, 3, 323-343.Search in Google Scholar
Rieger, M.O. 2010. SP/A and CPT: A Reconciliation of Two Behavioural Decision Theories. Economics Letters, 108, 327-329.Search in Google Scholar
Rothschild, M. and Stiglitz, J.E., 1970. Increasing Risk: I. A Definition, Journal of Economic Theory, 2, pp.225-243.10.1016/0022-0531(70)90038-4Search in Google Scholar
Rothschild, M. and Stiglitz, J.E., 1971. Increasing Risk: II. Its Economic Consequences, Journal of Economic Theory, 3, pp.66-84.10.1016/0022-0531(71)90034-2Search in Google Scholar
Roy, A.D. 1952. Safety First and the Holding of Assets. Econometrica, 20, 431-449.Search in Google Scholar
Sandler, T., Tschirhart, J.T. & Cauley, J. 1983. A Theoretical Analysis of Transnational Terrorism. American Political Science Review, 77, 36-54.Search in Google Scholar
Schmeidler, D. 1989. Subjective Probability and Expected Utility Without Additivity. Econometrica, 57, 571-587.Search in Google Scholar
Shefrin, H. & Statman, M. 2000. Behavioural Portfolio Theory. Journal of Financial and Quantitative Analysis, 35, 127-151.Search in Google Scholar
Starmer, C. 2000. Developments in Non-Expected Utility Theory: The Hunt for a Descriptive Theory of Choice Under Risk. Journal of Economic Literature, 38, 332-382.Search in Google Scholar
Telser, L. 1956. Safety First and Hedging. Review of Economic Studies, 23, 1-16.Search in Google Scholar
Tversky, A. & Kahneman, D. 1992. Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, 5, 297-323.Search in Google Scholar
Wu, G. & Gonzalez, R. 1996. Curvature of the Probability Weighting Function. Management Science, 42, 1676-1690.Search in Google Scholar
Yaari, M.E. 1987. The Dual Theory of Choice Under Risk. Econometrica, 55, 95-115.Search in Google Scholar
© 2018 Peter J. Phillips and Gabriela Pohl, published by De Gruyter Open
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.
