Working Paper: NBER ID: w25273
Authors: Oded Galor; Viacheslav Savitskiy
Abstract: This research explores the origins of loss aversion and the variation in its prevalence across regions, nations and ethnic group. It advances the hypothesis and establishes empirically that the evolution of loss aversion in the course of human history can be traced to the adaptation of humans to the asymmetric effects of climatic shocks on reproductive success during the epoch in which subsistence consumption was a binding constraint. Exploiting regional variations in the vulnerability to climatic shocks and their exogenous changes in the course of the Columbian Exchange, the research establishes that consistent with the predictions of the theory, individuals and ethnic groups that are originated in regions marked by greater climatic volatility have higher predisposition towards loss-neutrality, while descendants of regions in which climatic conditions tended to be spatially correlated, and thus shocks were aggregate in nature, are characterized by greater intensity of loss aversion.
Keywords: loss aversion; climatic shocks; economic development; behavioral economics
JEL Codes: D81; D91; Z10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| climatic volatility (Q54) | loss neutrality (F11) |
| spatially correlated climatic conditions (Q54) | loss aversion (G41) |
| temperature volatility in parental country (F31) | loss aversion (G41) |
| temperature volatility in parental country (F31) | loss neutrality (F11) |
| spatial correlation (C49) | loss neutrality (F11) |
| cultural embodiment (Z10) | loss aversion (G41) |
| intergenerational transmission of climatic adaptation (D15) | loss aversion (G41) |