Doctoral Dissertation Research: Shocks, Trauma, Behavioral Parameters and Subjective Expectations: The Effects of Abduction and Violence on Economic Behavior in Northern Uganda

Cornell University, Ithaca NY

Investigators

Abstract

As the 2011 World Development Report notes one in four individuals live either in fragile and conflict-affected countries or in ones with very high levels of criminal violence. Moreover, not a single Millennium Development Goal (MDG) has been achieved by a low income fragile or conflict-affected country. Despite the wide ranging influence of conflict and its importance to country and individual-level development outcomes, economics has a limited understand of its long run consequences. Economics almost exclusively focuses on tangible consequences, such as assets loss or nutritional and educational attainment. In doing so, economics ignores the possibility that the severity of a shock is not only reflected in its destruction but also in its traumatic nature. In contrast to this view, an extensive mental health literature finds that traumatic experiences can lead to behavioral changes that persist across decades. These changes may explain, for instance, why households with identical losses can have heterogeneous responses after shocks, or why shocks may lead to changed behavior despite no visible changes to constraints or opportunities. This project investigates the lasting effects of traumatic experiences on post-conflict behavior and outcomes in Northern Uganda. The research re-interviews an ex ante representative sample of young men, many of whom were abducted by rebels forces and experienced violence. In particular, we focus on two main pathways: economic behavioral parameters, such as risk aversion, time preferences and trust, and the subjective probabilities of future events. For instance, mental health studies of war-affected children report behavioral changes that are consistent with shifts in the economic behavioral parameters (risk aversion, time preferences, and trust) that are believed to explain much of the heterogeneity of economic outcomes. Consequently, the project will use recent innovations in field experiments to elicit estimates of these behavioral parameters and examine their impact on corresponding economic outcomes. In doing so, we add to the handful of recent economics studies that challenge the traditional view in economics that behavioral parameters are fixed and therefore are not affected by shocks. The findings from these new studies are ambiguous, finding changes in behavior but unclear impacts of economic outcomes. This project will both confirm the impact of trauma on behavioral parameters and examine whether the prior contradictory findings regarding the effects on economic outcomes were due the setting of the studies or the choice of outcomes. Although the mental health and economics literature differ on why behavior may change after shocks, the ultimate changes should be reflected in the subjective probabilities of future uncertain events. Only one study in economics has studied the impact of traumatic events on both behavior and subjective probabilities. Whereas the previous study only looked at shocks related to the traumatic event, by eliciting subjective probabilities on a wide range of shocks, we will be able to see whether traumatic experiences affect the subjective probabilities of both traumatic and non-traumatic events. This possibility is an alternative explanation for such findings in prior research on selective changes in behavior following exposure to violence. Several new avenues of research are opened by moving beyond traditional models of shocks in economics. In particular, post-conflict as well as other post-shock interventions may need to be reconsidered as individuals may have varying abilities to take advantage of them. For instance, cash transfers may be less useful when the most affected have altered time preferences or risk aversion parameters. Similarly, income levels and assets may no longer fully capture vulnerability in post-conflict areas. To conclude, the proposed research addresses an important gap in our understanding of the effects of shocks on behavior: what are the effects of traumatic experiences on behavioral parameters, economic outcomes and subjective probabilities? The project answers this by examining the ongoing effects of child abductions and exposure to violence among young men in Northern Uganda. In addition to helping to connect the mental health and economics literatures, the project contributes to economics, policy and the individuals for whom trauma persists.