Does terrorism make people pessimistic? Evidence from a natural experiment

This paper uses a natural experiment to estimate the causal impact of low-casualty terrorist attacks on pessimistic beliefs in Africa. Distinct from fear, pessimism has been found to hinder optimal economic decisions and well-being. By comparing survey responses of people interviewed in the same area immediately before and after a terrorist attack, we find that terrorism increases pessimism about future living conditions by 11 percentage points. The effect is not driven by the direct damages of attacks or people's expectations of the national economy, and is stronger for attacks targeting religious figures and among respondents living in rural areas. Further analysis suggests that this effect tends to shift people to more accurate beliefs. Our results thus show that even low-casualty terrorist attacks have a substantial impact on people's beliefs.