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Flood Risk Perceptions and Insurance Choice: Do Decisions in the Floodplain Reflect Overoptimism?

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  • Andrew Royal
  • Margaret Walls

Abstract

In the presence of rare disasters, risk perceptions may not always align with actual risks. These perceptions can nevertheless influence an individual's willingness to mitigate risks through activities such as purchasing flood insurance. In a survey of Maryland floodplain residents, we find that stated risk perceptions predict voluntary flood insurance take‐up, while perceptions themselves varied widely among surveyed residents, owing in large part to differences in past flood experience. We use a formal test for overoptimism in risk perceptions and find that, on aggregate, floodplain residents are overly optimistic about flood risks.

Suggested Citation

  • Andrew Royal & Margaret Walls, 2019. "Flood Risk Perceptions and Insurance Choice: Do Decisions in the Floodplain Reflect Overoptimism?," Risk Analysis, John Wiley & Sons, vol. 39(5), pages 1088-1104, May.
    • Handle: RePEc:wly:riskan:v:39:y:2019:i:5:p:1088-1104
    DOI: 10.1111/risa.13240
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    3. Delin Liu & Mengjie Li & Yue Li & Hao Chen, 2022. "Assessment of Public Flood Risk Perception and Influencing Factors: An Example of Jiaozuo City, China," Sustainability, MDPI, vol. 14(15), pages 1-15, August.
    4. Jinan N. Allan & Joseph T. Ripberger & Wesley Wehde & Makenzie Krocak & Carol L. Silva & Hank C. Jenkins‐Smith, 2020. "Geographic Distributions of Extreme Weather Risk Perceptions in the United States," Risk Analysis, John Wiley & Sons, vol. 40(12), pages 2498-2508, December.
    5. Knighton, James & Buchanan, Brian & Guzman, Christian & Elliott, Rebecca & White, Eric & Rahm, Brian, 2020. "Predicting flood insurance claims with hydrologic and socioeconomic demographics via machine learning: exploring the roles of topography, minority populations, and political dissimilarity," LSE Research Online Documents on Economics 105761, London School of Economics and Political Science, LSE Library.
    6. Jantsje M. Mol & W. J. Wouter Botzen & Julia E. Blasch & Hans de Moel, 2020. "Insights into Flood Risk Misperceptions of Homeowners in the Dutch River Delta," Risk Analysis, John Wiley & Sons, vol. 40(7), pages 1450-1468, July.
    7. Hanna Freudenreich & Sindu W. Kebede, 2022. "Experience of shocks, household wealth and expectation formation: Evidence from smallholder farmers in Kenya," Agricultural Economics, International Association of Agricultural Economists, vol. 53(5), pages 756-774, September.
    8. Yuyuan Che & Hongli Feng & David A. Hennessy, 2020. "Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 52-85, January.
    9. Aloysius Gunadi Brata & Henri L. F. de Groot & Piet Rietveld & Budy P. Resosudarmo & Wouter Zant, 2021. "Resilience toward Volcanic Eruptions: Risk Perception and Disaster Microinsurance in Yogyakarta, Indonesia," Sustainability, MDPI, vol. 13(16), pages 1-16, August.

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