Advanced Search
MyIDEAS: Login

Failing to learn from experience about catastrophes: The case of hurricane preparedness

Contents:

Author Info

  • Robert Meyer

    ()

Registered author(s):

    Abstract

    This paper explores the question of whether there are inherent limits to our ability to learn from experience about the value of protection against low-probability, high-consequence, events. Findings are reported from two controlled experiments in which participants have a monetary incentive to learn from experience making investments to protect against hurricane risks. A central finding is that investments display a short-term forgetting effect consistent with the use of reinforcement learning rules, where a significant driver of investments in a given period is whether storm losses were incurred in the precious period. Given the relative rarity of such losses, this reinforcement process produces a mean investment level below that which would be optimal for most storm threats. Investments are also found to be insensitive to the censoring effect of protection itself, implying that the size of experienced losses—rather than losses that are avoided—is the primary driver of investment decisions. Copyright Springer Science+Business Media New York 2012

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1007/s11166-012-9146-4
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 45 (2012)
    Issue (Month): 1 (August)
    Pages: 25-50

    as in new window
    Handle: RePEc:kap:jrisku:v:45:y:2012:i:1:p:25-50

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=100299

    Related research

    Keywords: Decision making under uncertainty; Learning from experience; Natural disasters; D8; D9; Q5;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ehud Kalai & Ehud Lehrer, 1990. "Rational Learning Leads to Nash Equilibrium," Discussion Papers 895, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Aric Shafran, 2011. "Self-protection against repeated low probability risks," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 263-285, June.
    3. Viscusi, W Kip, 1979. "Insurance and Individual Incentives in Adaptive Contexts," Econometrica, Econometric Society, vol. 47(5), pages 1195-1207, September.
    4. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, vol. 6(1), pages 1-15, March.
    5. Robin L. Dillon & Catherine H. Tinsley, 2008. "How Near-Misses Influence Decision Making Under Risk: A Missed Opportunity for Learning," Management Science, INFORMS, vol. 54(8), pages 1425-1440, August.
    6. Erwann O. Michel-Kerjan, 2010. "Catastrophe Economics: The National Flood Insurance Program," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 165-86, Fall.
    7. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
    8. Browne, Mark J & Hoyt, Robert E, 2000. " The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May.
    9. V. Smith & Jared Carbone & Jaren Pope & Daniel Hallstrom & Michael Darden, 2006. "Adjusting to natural disasters," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 37-54, September.
    10. Raghubir, Priya & Menon, Geeta, 1998. " AIDS and Me, Never the Twain Shall Meet: The Effects of Information Accessibility on Judgments of Risk and Advertising Effectiveness," Journal of Consumer Research, University of Chicago Press, vol. 25(1), pages 52-63, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. van Ours, Jan C & Vollaard, Ben, 2013. "The engine immobilizer: a non-starter for car thieves," CEPR Discussion Papers 9298, C.E.P.R. Discussion Papers.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kap:jrisku:v:45:y:2012:i:1:p:25-50. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.