Four dot points to end the chapter

  • • Terrorist groups diversify. Even if they do this naively, it shapes the group’s risks and rewards.
  • • Terrorist groups diversify their attack methods and targets. International terrorism allows further diversification, increasing the payoffs that can be obtained at each level of risk.
  • • Modern portfolio theory (MPT) is a complete framework for analysing the risks and rewards that terrorist groups confront and the choices that they make.
  • • Behavioural portfolio theory (BPT) expands on MPT by allowing such things as aspirations and mental accounts to shape decisions.

Notes

  • 1 Dobson and Paine (1977, p. 15).
  • 2 The GTD classifies the Munich attack as an ‘assassination’.
  • 3 Also see Phillips and Pohl (2012).
  • 4 This has been a hotly contested and much researched sub-field in financial economics. To name just a selection of important papers, see Baron (1977), Bessler, Opfer and Wolff (2017), Borch (1969), Feldstein (1969), Friedman and Savage (1948), Grinblatt and Han (2005), Hakansson (1971), Johnstone and Lindley (2013), Pulley (1983) and Tobin (1969).
  • 5 See Chapter 3.
  • 6 Shefrin and Statman (2000).
  • 7 We should also note that a complete opportunity set computed using the Markowitz MPT approach (depicted in a stylised fashion in Figure 6.2) is the opportunity set. A BPT decision-maker cannot craft anything different from the basic underlying statistical structure of the context.
  • 8 For a discussion of the application of SP/A theory to terrorist choice see Phillips and Pohl (2018).
  • 9 Sheffin and Statman (2000, p. 141) create such a situation.
  • 10 Sheffin and Statman (2000) also explore the evolutionary implications. BPT/MA decision-making will not generally be ‘growth optimal’. Like mean-variance decisionmaking, it depends on how closely the type of decision-making that is applied approximates the choices of the logarithmic utility maximiser.

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