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Risk-Taking Behavior in the Wake of Natural Disasters

  • Lisa Cameron
  • Manisha Shah

We investigate whether experiencing a natural disaster affects risk-taking behavior. We conduct standard risk games (using real money) with randomly selected individuals in rural Indonesia. We find that individuals who recently suffered a flood or earthquake exhibit more risk aversion. Experiencing a natural disaster causes people to perceive that they now face a greater risk of a future disaster. We conclude that this change in perception of background risk causes people to take fewer risks. We provide evidence that experimental risk behavior is correlated with real life risk behavior, highlighting the importance of our results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19534.

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Date of creation: Oct 2013
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Handle: RePEc:nbr:nberwo:19534
Note: DEV EEE
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