Working Paper: NBER ID: w19534
Authors: Lisa Cameron; Manisha Shah
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.
Keywords: Natural Disasters; Risk Aversion; Behavioral Economics; Indonesia
JEL Codes: D81; O12; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk aversion (D81) | economic decisions (G11) |
| Natural disasters (H84) | risk aversion (D81) |
| Natural disasters (H84) | risky choices (D81) |
| Recent disasters (H84) | risk perception (D81) |
| Historical disasters (H84) | risk behavior (I12) |