The Efficiency of Terrorist Choice: A Risk-Reward Analysis

Abstract

This article presents an economic analysis of terrorist choice in a context where media coverage is the desired payoff. Terrorist groups are depicted as maximizing an expected utility function with two relevant parameters: risk (variance of payoffs) and reward (average payoff). The theoretical framework deployed in this article permits the relative “efficiency” of different terrorist groups to be assessed. Using data for the period 1970 to 1980 in the Federal Republic of Germany, each active terrorist group’s allocation of resources to different attack methods is assessed against an “efficient” or optimal trade-off between risk and reward. Among the several findings that emerge is the relative efficiency of the Red Army Faction (RAF); a group known to be particularly media “savvy.” The RAF’s resource allocations across the period under consideration would, given the structure of media coverage accorded to different attacks carried out by all groups, generate an almost optimum expected payoff at the group’s chosen level of risk. In addition to these micro-level findings, the analysis presented in this article shows a clearer picture of the decision-making process of terrorist groups in a context where those groups attempt to maximize media coverage for their actions.