Evolution of Subjective Hurricane Risk Perceptions: A Bayesian Approach
David Kelly (),
Forest Nelson (),
David S. Nolan () and
Daniel Solis ()
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Forest Nelson: Department of Economics, Henry B. Tippie College of Business Administration, University of Iowa
David S. Nolan: Rosenstiel School of Marine and Atmospheric Science, University of Miami
No 905, Working Papers from University of Miami, Department of Economics
This paper studies how individuals update subjective risk perceptions in response to hurricane track forecast information, using a unique data set from an event market, the Hurricane Futures Market (HFM). We derive a theoretical Bayesian framework which predicts how traders update their perceptions of the probability of a hurricane making landfall in a certain range of coastline. Our results suggest that traders behave in a way consistent with Bayesian updating but this behavior is based on the perceived quality of the information received.
Keywords: risk perceptions; learning; Bayesian learning; event markets; prediction markets; favorite-longshot bias; hurricanes (search for similar items in EconPapers)
JEL-codes: D83 C53 G14 C9 (search for similar items in EconPapers)
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Forthcoming: Under Review
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http://www.bus.miami.edu/_assets/files/faculty-and ... -kelly-hfm3_1_09.pdf First version, 2009 (application/pdf)
Journal Article: Evolution of subjective hurricane risk perceptions: A Bayesian approach (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:mia:wpaper:0905
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