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

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  • Robert Meyer

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

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  • Robert Meyer, 2012. "Failing to learn from experience about catastrophes: The case of hurricane preparedness," Journal of Risk and Uncertainty, Springer, vol. 45(1), pages 25-50, August.
    • Handle: RePEc:kap:jrisku:v:45:y:2012:i:1:p:25-50
    DOI: 10.1007/s11166-012-9146-4
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    2. Jan C. Ours & Ben Vollaard, 2016. "The Engine Immobiliser: A Non‐starter for Car Thieves," Economic Journal, Royal Economic Society, vol. 126(593), pages 1264-1291, June.
    3. Nicklisch, Andreas & Köke, Sonja & Lange, Andreas, 2016. "Is Adversity a School of Wisdom? Experimental Evidence on Cooperative Protection Against Stochastic Losses," VfS Annual Conference 2016 (Augsburg): Demographic Change 145716, Verein für Socialpolitik / German Economic Association.
    4. Johanna Choumert-Nkolo & Anaïs Lamour & Pascale Phélinas, 2021. "The Economics of Volcanoes," Economics of Disasters and Climate Change, Springer, vol. 5(2), pages 277-299, July.
    5. Ryan Rahinel & Noelle M. Nelson, 2016. "When Brand Logos Describe the Environment: Design Instability and the Utility of Safety-Oriented Products," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 43(3), pages 478-496.
    6. Adloff, Susann, 2021. "Adapting to Climate Change: Threat Experience, Cognition and Protection Motivation," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242400, Verein für Socialpolitik / German Economic Association.
    7. Ian Durbach & Gilberto Montibeller, 2018. "Predicting in shock: on the impact of negative, extreme, rare, and short lived events on judgmental forecasts," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 6(1), pages 213-233, June.
    8. Jinshu Cui & Heather Rosoff & Richard S. John, 2017. "A Polytomous Item Response Theory Model for Measuring Near-Miss Appraisal as a Psychological Trait," Decision Analysis, INFORMS, vol. 14(2), pages 75-86, June.
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    10. Hohnisch, M. & Pittnauer, S. & Selten, R. & Pfingsten, A. & Eraßmy, J., 2014. "Gender differences in decisions under profound uncertainty are non-robust to the availability of information on equally informed others’ decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 40-58.
    11. Toon Haer & W. J. Wouter Botzen & Hans de Moel & Jeroen C. J. H. Aerts, 2017. "Integrating Household Risk Mitigation Behavior in Flood Risk Analysis: An Agent‐Based Model Approach," Risk Analysis, John Wiley & Sons, vol. 37(10), pages 1977-1992, October.
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    More about this item

    Keywords

    Decision making under uncertainty; Learning from experience; Natural disasters; D8; D9; Q5;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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