Applying modern portfolio theory to the analysis of terrorism: computing the set of attack method combinations from which the rational terrorist group will choose in order to maximise injuries and fatalities

Phillips, Peter J. (2009) Applying modern portfolio theory to the analysis of terrorism: computing the set of attack method combinations from which the rational terrorist group will choose in order to maximise injuries and fatalities. Defence and Peace Economics, 20 (3). pp. 193-213. ISSN 1024-2694

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Abstract

In this paper, terrorism is analysed using the tools of modern portfolio theory. This approach permits the analysis of the returns that a terrorist group can expect from their activities as well as the risk they face. The analysis sheds new light on the nature of the terrorist group’s (attack method) choice set and the efficiency properties of that set. If terrorist groups are, on average, more risk averse, the economist can expect the terrorist group to exhibit a bias towards bombing and armed attack. In addition, even the riskiest (from the terrorist group’s point of view) combinations of attack methods have maximum expected returns of less than 70 injuries and fatalities per attack per year.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Author's version deposited in accordance with the copyright policy of the publisher.
Depositing User: Dr Peter Phillips
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 21 Jul 2009 03:16
Last Modified: 02 Jul 2013 23:20
Uncontrolled Keywords: terrorism; modern portfolio theory; mean-variance analysis; efficient choice set
Fields of Research (FOR2008): 17 Psychology and Cognitive Sciences > 1702 Cognitive Sciences > 170202 Decision Making
14 Economics > 1402 Applied Economics > 140299 Applied Economics not elsewhere classified
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective (SEO2008): A Defence > 81 Defence > 8101 Defence > 810107 National Security
Identification Number or DOI: doi: 10.1080/10242690801923124
URI: http://eprints.usq.edu.au/id/eprint/5423

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