Abstract
We conduct an incentive-compatible lab-in-the-field experiment with a large representative sample to study how exposure to armed conflict affects risk and ambiguity preferences of individuals. We identify random exposure to conflict by relying on a natural experiment in Turkey created by the military institutions and the long running civil conflict in the country. We show that the effects on risk and ambiguity preferences depend on the type of exposure. We find that as the level of exposure to conflict environment increases individuals become more tolerant to risk. Having traumatic direct experiences of armed violence, however, creates the opposite effect and renders them extremely risk averse. Such individuals also become more averse to ambiguity. We also show that time since exposure should be considered in determining the overall effects. Overall our findings indicate that preferences on risk and ambiguity are history-dependent.
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