Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java
We study the evolution of preferences of villagers living under the threat of natural hazards in a volcanic area (Mount Mer- api, Central Java). Between December 2010 and April 2011, shortly after a major eruption, the villagers (perceived) expo- sure changed dramatically. We ran incentivized experiments at the beginning and after this period in order to elicit villagers' risk preferences and time preferences. Our three main ndings are as follows: (1) there exists a signi cant negative correlation between risk-tolerance and impatience (before and after): individuals who are more risk-tolerant are less impatient; (2) most respondents exhibit a change in their risk preference and/or time preference after having been exposed to a higher level of threat; (3) there ex- ists a signi cant negative correlation between the erosion of risk tolerance and the erosion of patience: individuals who became less (more) risk-tolerant also became more (less) impatient.
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|Date of revision:||May 2013|
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