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Catastrophic Risk Perception and the Shared Burden Effect: An Experimental Study Using Prospect Theory

Author

Listed:
  • Riccardo Manghi

    (LUISS Guido Carli University)

  • Daniela Di Cagno

    (LUISS Guido Carli University)

Abstract

This study investigates individual differences in catastrophic risk perception using Cumulative Prospect Theory (CPT) through a laboratory experiment. The choice of CPT allows us to introduce a basic "addendum" to traditional EUT evaluations of these kinds of risks. We analyze the drivers of risk perception through a laboratory measure of CPT based on experimental data, where possible drivers include sociodemographic factors, psychological characteristics, and psychometric variables such as past experience. We define in this setting an interesting aspect that is a peculiar characteristic of extreme risks: the so-called shared burden effect, where individuals perceive the same risks as less severe if they affect a larger share of the collectivity. External validity is provided by examining whether laboratory-elicited risk perception predicts real-world extreme risk assessments.

Suggested Citation

  • Riccardo Manghi & Daniela Di Cagno, 2025. "Catastrophic Risk Perception and the Shared Burden Effect: An Experimental Study Using Prospect Theory," CEIS Research Paper 605, Tor Vergata University, CEIS, revised 23 Jun 2025.
    • Handle: RePEc:rtv:ceisrp:605
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    More about this item

    Keywords

    risk perception; catastrophic risk; prospect theory; experimental economics; shared burden effect;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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