Abstract
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.
- Received January 2013.
- Accepted March 2014.
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- Article
- Abstract
- I. Introduction
- II. Why Should Natural Disasters Affect Risk Behavior?
- III. Indonesia and Natural Disasters
- IV. Data and Experimental Design
- V. Summary Statistics
- VI. Empirical Strategy
- VII. Empirical Results
- VIII. Potential Pathways
- IX. Do the Experimentally Risk-Averse Take Fewer Risks in Daily Life?
- X. Conclusion
- Footnotes
- References
- Figures & Data
- Supplemental
- Info & Metrics
- References