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The impact of violence on individual risk preferences : evidence from a natural experiment

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  • Jakiela,Pamela
  • Ozier,Owen

Abstract

This study estimates the impact of Kenya?s post-election violence on individual risk preferences. Because the crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, this timing creates plausibly exogenous variation in exposure to civil conflict by the time of the survey. The study measures individual risk preferences using hypothetical lottery choice questions, which are validated by showing that they predict migration and entrepreneurship in the cross-section. The results indicate that the post-election violence sharply increased individual risk aversion. Immediately after the crisis, the fraction of subjects who are classified as either risk neutral or risk loving dropped by roughly 26 percent. The findings remain robust to an IV estimation strategy that exploits random assignment of respondents to waves of surveying.

Suggested Citation

  • Jakiela,Pamela & Ozier,Owen, 2015. "The impact of violence on individual risk preferences : evidence from a natural experiment," Policy Research Working Paper Series 7440, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7440
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Nasir & Marc Rockmore & Chih Ming Tan, 2015. "It's No Spring Break in Cancun: The Effects of Exposure to Violence on Risk Preferences, Pro-Social Behavior, and Mental Health," Working Paper series 15-40, Rimini Centre for Economic Analysis.
    2. Ryan Brown & Verónica Montalva & Duncan Thomas & Andrea Velásquez, 2017. "Impact of Violent Crime on Risk Aversion: Evidence from the Mexican Drug War," NBER Working Papers 23181, National Bureau of Economic Research, Inc.
    3. Ferdinand Vieider, 2016. "Certainty Preference, Random Choice, and Loss Aversion: A Comment on "Violence and Risk Preference: Experimental Evidence from Afghanistan"," Economics & Management Discussion Papers em-dp2016-06, Henley Business School, Reading University.

    More about this item

    Keywords

    Economic Theory&Research; Banks&Banking Reform; Statistical&Mathematical Sciences; Labor Policies; Hazard Risk Management;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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