The Choices of Terrorist Groups: Expected Utility versus Prospect Theory

This paper is about terrorists’ choices regarding alternative combinations of attack methods. Preference orderings are obtained by directly computing the expected utility of each alternative combination using several popular specifications of the expected utility function, including logarithmic, quadratic, exponential and power utility functions. The preference orderings associated with each of these expected utility functions are compared with each other and with the preference orderings — at different reference points — derived from the main theoretical rival to expected utility theory, prospect theory. The paper contributes to our understanding of how terrorists make choices under conditions of risk and uncertainty.