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Risk taking and risk learning after a rare event: Evidence from a field experiment in Pakistan

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  • Said, Farah
  • Afzal, Uzma
  • Turner, Ginger

Abstract

This paper investigates the impact of rare event experience and observation on risk-taking. Matching detailed individual, household, and community-level surveys with behavioral field experiment data, we are able to further illuminate the mechanisms underlying individual risk taking after natural disasters. In addition to detailed survey data, individual propensity to undertake risk was elicited under a framed experiment setting from 192 respondents in flooded and 192 respondents in non flooded villages matched using propensity data. In the context of rural Punjab, Pakistan, we find that individuals who live in areas affected by the 2010 floods do exhibit higher risk aversion but there is significant individual variation. In addition, individuals who have personal experience of floods in the flooded villages exhibit lower risk aversion pointing toward a mitigating effect of personal experience. In multiple rounds of the experiment, we also find that the change in strategy between rounds depends on the severity of losses experienced and on the number of floods previously experienced in one's lifetime.

Suggested Citation

  • Said, Farah & Afzal, Uzma & Turner, Ginger, 2015. "Risk taking and risk learning after a rare event: Evidence from a field experiment in Pakistan," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 167-183.
  • Handle: RePEc:eee:jeborg:v:118:y:2015:i:c:p:167-183
    DOI: 10.1016/j.jebo.2015.03.001
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    References listed on IDEAS

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    Cited by:

    1. Gualtieri, Giovanni & Nicolini, Marcella & Sabatini, Fabio & Zamparelli, Luca, 2018. "Natural disasters and demand for redistribution: lessons from an earthquake," MPRA Paper 86445, University Library of Munich, Germany.
    2. Gualtieri, Giovanni & Nicolini, Marcella & Sabatini, Fabio & Zamparelli, Luca, 2018. "Repeated shocks and preferences for redistribution," ET: Economic Theory 273143, Fondazione Eni Enrico Mattei (FEEM).
    3. Freudenreich, Hanna & Musshoff, Oliver & Wiercinski, Ben, 2017. "The Relationship between Farmers' Shock Experiences and their Uncertainty Preferences - Experimental Evidence from Mexico," GlobalFood Discussion Papers 256212, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    4. repec:spr:ediscc:v:1:y:2017:i:3:d:10.1007_s41885-017-0016-z is not listed on IDEAS
    5. Chuang, Yating & Schechter, Laura, 2015. "Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results," Journal of Development Economics, Elsevier, vol. 117(C), pages 151-170.
    6. Kettlewell, Nathan & Rijsdijk, Fruhling & Siribaddana, Sisira & Sumathipala, Athula & Tymula, Agnieszka & Zavos, Helena & Glozier, Nicholas, 2018. "Civil War, Natural Disaster and Risk Preferences: Evidence from Sri Lankan Twins," IZA Discussion Papers 11901, Institute of Labor Economics (IZA).

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