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Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java

  • Marc Willinger
  • Mohamed Ali Bchir
  • Carine Heitz

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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Paper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 13-08.

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Length: 23 pages
Date of creation: May 2013
Date of revision: May 2013
Handle: RePEc:lam:wpaper:13-08
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  1. Sophia Rabe-Hesketh & Andrew Pickles & Colin Taylor, 2000. "Generalized linear latent and mixed models," Stata Technical Bulletin, StataCorp LP, vol. 9(53).
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  6. Lisa Cameron & Manisha Shah, 2015. "Risk-Taking Behavior in the Wake of Natural Disasters," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 484-515.
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  8. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  9. David Herberich & John List, 2012. "Digging into background risk: Experiments with farmers and students," Framed Field Experiments 00157, The Field Experiments Website.
  10. Nick Netzer, 2008. "Evolution of Time Preferences and Attitudes Towards Risk," TWI Research Paper Series 29, Thurgauer Wirtschaftsinstitut, Universit�t Konstanz.
  11. Maarten J. Voors & Eleonora E. M. Nillesen & Philip Verwimp & Erwin H. Bulte & Robert Lensink & Daan P. Van Soest, 2012. "Violent Conflict and Behavior: A Field Experiment in Burundi," American Economic Review, American Economic Association, vol. 102(2), pages 941-64, April.
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