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Climatic Roots of Loss Aversion

Author

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  • Galor, Oded

    () (Brown University)

  • Savitskiy, Viacheslav

    () (Brown University)

Abstract

This research explores the origins of loss aversion and the variation in its prevalence across regions, nations and ethnic group. It advances the hypothesis and establishes empirically that the evolution of loss aversion in the course of human history can be traced to the adaptation of individuals to the asymmetric effects of climatic shocks on reproductive success during the Malthusian epoch in which subsistence consumption was a binding constraint. Exploiting regional variations in the vulnerability to climatic shocks and their exogenous changes in the course of the Columbian Exchange, the research establishes that consistent with the predictions of the theory, individuals and ethnic groups that are originated in regions marked by greater climatic volatility have higher predisposition towards loss-neutrality, while descendants of regions in which climatic conditions tended to be spatially correlated, and thus shocks were aggregate in nature, are characterized by greater intensity of loss aversion.

Suggested Citation

  • Galor, Oded & Savitskiy, Viacheslav, 2018. "Climatic Roots of Loss Aversion," IZA Discussion Papers 11816, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11816
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    More about this item

    Keywords

    loss aversion; cultural evolution; evolution of preferences; natural selection; Malthusian epoch; growth; development;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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