Terrorist groups repeatedly take actions that are ultimately politically counter-productive. Sometimes these are the result of deliberate calculations that happen to be mistaken – Al-Qaeda’s decision to conduct the 9/11 attacks is the most obvious example of an ultimately self-defeating operation. Sometimes they reflect the challenges groups face in controlling their operatives: Al-Qaeda in Iraq’s excessive public violence against other Sunni organisations stand out. At other times they appear to steer difficult political waters quite effectively despite of deep internal divisions—Hamas is the exemplar here. This article reviews recent developments in the literature on terrorist decision-making in economics and political science. Overall, tremendous advances have been made in the last 10 years, but much work remains to be done. In particular, it is argued that the literature needs to do better at testing its theories in inferentially credible ways and at considering terrorism as one tactical option among many for opposition political groups.