COVID-19 Enhanced Diminishing Sensitivity in Prospect-Theory Risk Preferences: A Panel Analysis
Shinsuke Ikeda,
Eiji Yamamura () and
Yoshiro Tsutsui ()
ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka
Abstract:
Based on unique panel data from a five-wave internet survey in Japan, we show how the coronavirus disease 2019 pandemic affected people’s prospect-theory risk preferences, especially in the loss domain. The panel analysis indicates that with the spread of the pandemic, diminishing sensitivity becomes stronger for the participants’ value and probability weighting functions. Thus, due to the pandemic, (i) people become less sensitive to an increase in losses and feel less pain due to losses, especially large ones; and (ii) they become more pessimistic towards tail loss risks, and more optimistic towards non-tail loss risks. One implication is that people have become less cautious of the risks of suffering large non-tail losses, which might retard the recovery of society.
Date: 2020-10
New Economics Papers: this item is included in nep-cbe, nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1106
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