Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster
AbstractThis study explores people's risk attitudes after having suffered large real-world losses following a natural disaster. Using the margins of the 2011 Australian floods (Brisbane) as a natural experimental setting, we find that homeowners who were victims of the floods and face large losses in property values are 50% more likely to opt for a risky gamble - a scratch card giving a small chance of a large gain ($500,000) - than for a sure amount of comparable value ($10). This finding is consistent with prospect theory predictions of the adoption of a risk-seeking attitude after a loss.
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Bibliographic InfoPaper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 83.
Length: 18 pages
Date of creation: 07 Jun 2012
Date of revision: 09 Jul 2012
Decision under risk; large losses; natural experiment;
Other versions of this item:
- Lionel Page & David Savage & Benno Torgler, 2012. "Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster," Working Papers 2012.54, Fondazione Eni Enrico Mattei.
- 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 2012-07, Center for Research in Economics, Management and the Arts (CREMA).
- Lionel Page & David A. Savage & Benno Torgler, 2012. "Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster," CESifo Working Paper Series 3878, CESifo Group Munich.
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-EXP-2012-06-25 (Experimental Economics)
- NEP-UPT-2012-06-25 (Utility Models & Prospect Theory)
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