Building on psychological theories incorporating the role of emotion into decision-making, this paper proposes a theoretical framework accounting for learning and traumatic effects. In this model, individuals revise their perception of their emotional sensitivity through experiencing an extreme event. Using surveys conducted on Danish soldiers before and after deployment to Afghanistan in 2011, we test how learning effects and/or traumatic effects may impact individual preferences. To disentangle learning effects and traumatic effects, we focus on soldiers actually exposed to combat and we exploit the fact that in modern wars, exposure to combat intensity is plausibly exogenous. We find that combat exposure has an impact on personality traits, emotions and the perception of exposure to risks in daily life. In terms of learning effect, learning about own sensitivity regarding Fear has a significant impact on risk and time preferences, especially for loss aversion, while there appears to be less of a trauma effect.

CO authors : Stéphanie Vincent Lyk-Jensen and Jean-Christophe Vergnaud

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