Terrorism is an enduring consequence of the willingness of humans to use violence with the goal of affecting politics or of forcefully promoting ones ideology by inducing fear in the populace. Alarmingly, the frequency of terror attacks appears to be increasing. The most recent Global Peace Index Report notes that their terrorism impact indicator recorded the greatest deterioration over the period from 2008 to 2017, with 60 per cent of countries having higher levels of terrorism than a decade ago (Institute for Economics and Peace, 2017). The main objective of this research is to investigate socio-economic reasons for terrorism and the effects of terrorism on subjective wellbeing. In doing so, this research estimates the association between terrorism, self-reported life satisfaction and national income; explores the effect of the 2002 Moscow theatre siege on the level of expectations of life in the future of the Russian population; assesses the role of social dominance orientation (SDO) in explaining individuals’ fear of experiencing a terrorist attack and support for counter-terrorism policies; and analyses the effect of ethnic economic inequality on domestic terrorism. The results indicate that on the macroeconomic level terrorism is negatively associated with life satisfaction. This suggests that the social costs of terrorism are potentially much higher than the economic costs, and measuring only the conventional economic costs of terrorism significantly underestimates the true costs. When a different measure of wellbeing is used in the analysis, the net effect of a terrorist incident may not necessarily be negative. The findings indicate that people often experience positive reactions after a terrorist attack. These results are explained by the theory of post-traumatic growth – a theory that refers to the positive psychological change experienced as a result of adversity, with terrorism incidents inadvertently promoting more meaningful interpersonal relationships, new views of the self and new views of the world. This suggests that the wellbeing effects of terrorism are complex: to expand the understanding of the social consequences of terrorism it is necessary to pay equal attention to the positive effects of terrorism. This research expands the knowledge of the socio-psychological determinants of attitudes towards terrorism and counter-terrorism policies. The results show that social dominance orientation – an individual’s preference for inter-group hierarchies within a social system or group-based discrimination – positively predicts support for ‘defensive’ counter-terrorism policies, fear of terrorism and fear of Islamic extremism. It also predicts the relationship between social dominance orientation and support for defensive policies is mediated by fear. These findings have policy implications for the study of individuals’ willingness to forgo liberties in order to preserve the inter-group hierarchies and the conditions of support for liberty-infringing counter-terrorism policies. Finally, the results of this research indicate that ethnic economic inequality is robustly, positively and significantly associated with domestic terrorism. This in turn has an important implication that governments should pursue policies that promote the economic and social inclusion of minority ethnic groups.