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Learning from extreme catastrophes

Author

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  • Shinichi Kamiya

    (Nanyang Technological University)

  • Noriyoshi Yanase

    (Keio University)

Abstract

This article studies the effects of direct and indirect loss experience of extreme catastrophes on expectations concerning the likelihood of future events by investigating the earthquake insurance take-up of Japanese households after the two costliest disasters in history. Direct loss experiences caused the strongest reactions to extreme catastrophes, whereas risk belief updates were a nationwide phenomenon. Sharing personalized information contributed to strong and persistent indirect experience effects. Investigating the effect of past quake experience on reaction to a new major quake, we find that both availability bias and representativeness help explain the effect of past loss experiences. Furthermore, the gambler’s fallacy, as proposed by Tversky and Kahneman (Psychological Bulletin 76(2), 105–110, 1971), appears to play an important role after an indirect experience with a 1000-year earthquake.

Suggested Citation

  • Shinichi Kamiya & Noriyoshi Yanase, 2019. "Learning from extreme catastrophes," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 85-124, August.
    • Handle: RePEc:kap:jrisku:v:59:y:2019:i:1:d:10.1007_s11166-019-09310-8
    DOI: 10.1007/s11166-019-09310-8
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    3. Shi-jie Jiang & Feiyun Xiang & Iris Yang, 2023. "Effect of Prevention Focus on the Relationships Among Driving Accident History, Risk Perception, and Consumers’ Automobile Insurance Coverage Decisions," SAGE Open, , vol. 13(3), pages 21582440231, July.
    4. Lu Fang & Lingxiao Li & Abdullah Yavas, 2023. "The Impact of Distant Hurricane on Local Housing Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 327-372, February.
    5. Osberghaus, Daniel & Reif, Christiane, 2021. "How do different compensation schemes and loss experience affect insurance decisions? Experimental evidence from two independent and heterogeneous samples," Ecological Economics, Elsevier, vol. 187(C).
    6. Thomas Dudek & Eric R. Ulm & Ilan Noy, 2021. "Demand for Multi-Year Catastrophe Insurance Contracts: Experimental Evidence for Mitigating the Insurance Gap," CESifo Working Paper Series 9442, CESifo.
    7. Tetsuji Okazaki & Toshihiro Okubo & Eric Strobl, 2023. "Large Fires and the Rise of Fire Insurance in Pre-war Japan," CIRJE F-Series CIRJE-F-1220, CIRJE, Faculty of Economics, University of Tokyo.

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