Violence, Psychological Trauma, and Risk Attitudes: Evidence from Victims of Violence in Colombia

This article analyzes the effects of violence on risk attitudes, and explores whether violence affects poverty dynamics through a behavioral channel. The analysis is based on microdata data collected from a sample of IDPs in Colombia on: (a) the severity and temporal proximity of their exposure to violence; and (b) their symptoms of psychological trauma. The author finds that more severe and recent experiences of violence lead to higher levels of risk aversion, by inducing severe anxiety disorders, which can alter a victim’s economic decisions and contribute to their vulnerability. The author finds that the effects are not permanent and fade over time. The results suggest that violence can affect poverty dynamics through a behavioral channel, i.e. creating a behavioral poverty trap. The author highlights the need to incorporate mental health programs into assistance for victims of violence, IDPs, and refugees.