The long-term effects of war exposure on generalized trust and risk attitudes: evidence from post-conflict Bosnia and Herzegovina

ABSTRACT This article examines the long-term effects of war exposure on generalized trust and risk attitudes 20 years after the conflict in Bosnia and Herzegovina. Our study goes beyond the destruction of physical and human capital and investigates the effects of war exposure on psychological preferences and beliefs, as well as their mutual relationship and determinants. Our empirical strategy employs a nationally representative survey and an endogenous Seemingly Unrelated Model. We discover that individuals living in municipalities with greater war fatalities report significantly higher distrust in people and simultaneously express greater risk aversion. Moreover, there is a mutually endogenous and strong positive relationship between the two dependent variables, whereby greater trust is associated with greater risk-seeking. Consequently, our results demonstrate that the tragic consequences of war are not only confined to negative socio-economic outcomes but also leave a lasting impact on the psychological preferences of people that experienced it.