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Risk-Taking Behavior in the Wake of Natural Disasters

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  • Lisa Cameron
  • Manisha Shah

Abstract

We investigate whether experiencing a natural disaster affects risk-taking behavior. We conduct standard risk games (using real money) with randomly selected individuals in rural Indonesia. We find that individuals who recently suffered a flood or earthquake exhibit more risk aversion. Experiencing a natural disaster causes people to perceive that they now face a greater risk of a future disaster. We conclude that this change in perception of background risk causes people to take fewer risks. We provide evidence that experimental risk behavior is correlated with real life risk behavior, highlighting the importance of our results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19534.

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Date of creation: Oct 2013
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Handle: RePEc:nbr:nberwo:19534

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Cited by:
  1. Leonardo Becchetti & Stefano Castriota & Pierluigi Conzo, 2012. "Calamity, Aid and Indirect Reciprocity: the Long Run Impact of Tsunami on Altruism," CEIS Research Paper, Tor Vergata University, CEIS 239, Tor Vergata University, CEIS, revised 06 Jul 2012.
  2. Lionel Page & David Savage & Benno Torgler, 2012. "Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster," CREMA Working Paper Series, Center for Research in Economics, Management and the Arts (CREMA) 2012-07, Center for Research in Economics, Management and the Arts (CREMA).
  3. Vieider, Ferdinand M. & Chmura, Thorsten & Martinsson, Peter, 2012. "Risk attitudes, development, and growth: Macroeconomic evidence from experiments in 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2012-401, Social Science Research Center Berlin (WZB).
  4. Anh Duc Dang, 2012. "Cooperation makes beliefs: Weather variation and sources of social trust in Vietnam," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2012-596, Australian National University, College of Business and Economics, School of Economics.
  5. Lionel Page & David A. Savage & Benno Torgler, 2013. "Variation in risk seeking behavior following large losses: A natural experiment," QuBE Working Papers, QUT Business School 007, QUT Business School.
  6. Menéndez, Marta & Gignoux, Jérémie, 2012. "Critical periods and the long-run effects of income shocks on education: evidence from Indonesia," Economics Papers from University Paris Dauphine 123456789/6637, Paris Dauphine University.
  7. Sarah Necker & Michael Ziegelmeyer, 2014. "Household Risk Taking after the Financial Crisis," BCL working papers, Central Bank of Luxembourg 85, Central Bank of Luxembourg.
  8. Marc Willinger & Mohamed Ali Bchir & Carine Heitz, 2013. "Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java," Working Papers, LAMETA, Universtiy of Montpellier 13-08, LAMETA, Universtiy of Montpellier, revised May 2013.
  9. Alessandro Bucciol & Luca Zarri, 2013. "Financial Risk Aversion and Personal Life History," Working Papers, University of Verona, Department of Economics 05/2013, University of Verona, Department of Economics.
  10. repec:dgr:eureri:1765037344 is not listed on IDEAS
  11. Pierluigi Conzo, 2014. "Trust and Cheating in Sri Lanka: The Role of Experimentally-Induced Emotions about Tsunam," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 355, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  12. Ginger Turner & Farah Said & Uzma Afzal, 2014. "Microinsurance Demand After a Rare Flood Event: Evidence From a Field Experiment in Pakistan," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 39(2), pages 201-223, April.
  13. Sanjaya, Muhammad Ryan, 2013. "On the source of risk aversion in Indonesia using micro data 2007," Economics Discussion Papers 2013-33, Kiel Institute for the World Economy.
  14. Treffers, T. & Koellinger, Ph.D. & Picot, A.O., 2012. "In the Mood for Risk? A Random-Assignment Experiment Addressing the Effects of Moods on Risk Preferences," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2012-014-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  15. Anh Duc Dang, 2012. "On the Sources of Risk Preferences in Rural Vietnam," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2012-593, Australian National University, College of Business and Economics, School of Economics.
  16. Alain Cohn & Jan Engelmann & Ernst Fehr & Michel Maréchal, 2013. "Evidence for countercyclical risk aversion: an experiment with financial professionals," UBSCENTER - Working Papers, UBS International Center of Economics in Society - Department of Economics - University of Zurich 004, UBS International Center of Economics in Society - Department of Economics - University of Zurich.
  17. Bruno Martorano & Sudhanshu Handa & Carolyn Halpern & Harsha Thirumurthy & UNICEF Innocenti Research Centre, 2014. "Subjective Well-being, Risk Perceptions and Time Discounting: Evidence from a large-scale cash transfer programme," Innocenti Working Papers inwopa717, UNICEF Innocenti Research Centre.
  18. Mohamed Ali Bchir & Marc Willinger, 2013. "Does the exposure to natural hazards affect risk and time preferences? Some insights from a field experiment in Perú," Working Papers, LAMETA, Universtiy of Montpellier 13-04, LAMETA, Universtiy of Montpellier, revised Mar 2013.
  19. Trautmann, S.T. & Kuilen, G. van de, 2011. "Belief Elicitation: A Horse Race among Truth Serums," Discussion Paper, Tilburg University, Center for Economic Research 2011-117, Tilburg University, Center for Economic Research.

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