The notion that morale may be fatally shattered through the deliberate targeting of, or mere collateral damage to, civilians by aerial bombardment is a long-standing one. Although there is almost no evidence in support of the hypothesis, and in fact ample suggestion of the opposite effect, the principle continues to exert an almost mystical hold on many military thinkers and strategists. By its very name the “shock and awe” campaign that commenced the Coalition misadventures in Iraq in 2003 paid underlying homage to the idea. But overwhelming attack from the air rarely translates into anything close to a psychological knock-out blow.
We now understand that the nature of British war planning in the 1930s largely corresponded to this fear of the civilian’s supposedly fragile psyche. Even the (widely supported) path to appeasement by the Chamberlain government was doubtlessly influenced by these ideas, while its adherents failed to discern that there were other factors at work. Civilians, both individually and en masse, were indeed terribly vulnerable to the terror of Total War, but far more resilient than feared, and they exhibited a wide range of emotional reactions to bombing.
Some excellent work has been done, for instance by Amy Bell, in attempting to map an “emotional landscape” of Blitz-ravaged London.  There were indeed cases of hysteria, mental breakdown, and what we might classify as generalized anxiety. It is difficult to trace complete patterns or to determine degrees of severity, but there does not appear to be any strong suggestion of a sudden surge of psychiatric cases resulting from civilian wartime trauma. Many cases were understandably transitory due to the loss of a home and/or family members, and re-establishing some simple normality of daily life helped to ease mental distress. Social cohesion also ensured that many people acted calmly even if they did not feel this way; few would have wished to appear cowardly in the face of their neighbours. It is quite probable that government planners had spent far too much energy in preparing to deal with psychological trauma and not enough on coping with physical dislocation and distress.
If British officials had paid more detailed attention to the sudden introduction of aerial warfare against civilians during the Spanish Civil War (1936-1939) they might have re-assessed their single-minded focus on psychological morale. A sudden bombing strike, a “terrorist attack” as it were, produced an arc of emotions. It is true that the initial event did often induce panic, irrationality, and an overwhelming sense of doom. Quite quickly, however, such emotions subsided and were replaced with very individual reactions. Some were quietly determined to go to any lengths to help ensure their safety. Such were the leaders of the shelter-digging projects in cities such as Barcelona and Madrid, which civic-minded British observers attempted to emulate. Some people fled, others were fatalistic, still others giddy with excitement. And some (Winston Churchill was to fall into this category on occasion during the Blitz) could not help but stand on roof-tops, though vulnerable, transfixed by the spectacle of destruction as the bombs fell around them.
The fact that the human psyche is so varied, resilient, and adaptable has been most convenient for nations and peoples resisting attack, even if officialdom has lacked confidence in the performance of its citizenry. Perhaps of greatest importance, aerial attack (and the severity does not seem to matter) tends to increase civilian defiance, and a dogged determination not to be afraid.
Michele Haapamaki discusses the emotional background of the Second World War and Air Raid Precautions (ARP) in The Coming of the Aerial War: Culture and the Fear of Airborne Attack in Inter-war Britain.
Civilians preparing their backyard Anderson shelters according to government instructions. Officials were keen that the populace shelter at home, a policy they termed “dispersal,” in order to reduce the possibility of mass panic in large communal shelters. Utilization of the London Underground for the purpose of sheltering occurred in contravention of pre-war policy, and its use throughout the Blitz largely passed without evidence of the panic that was feared.