Catastrophic Risk Perception and the Shared Burden Effect: An Experimental Study Using Prospect Theory

Riccardo Manghi () and Daniela Di Cagno ()
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Riccardo Manghi: LUISS Guido Carli University
Daniela Di Cagno: LUISS Guido Carli University

No 605, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This study investigates individual differences in catastrophic risk perception using Cumulative Prospect Theory (CPT) through a laboratory experiment. The choice of CPT allows us to introduce a basic "addendum" to traditional EUT evaluations of these kinds of risks. We analyze the drivers of risk perception through a laboratory measure of CPT based on experimental data, where possible drivers include sociodemographic factors, psychological characteristics, and psychometric variables such as past experience. We define in this setting an interesting aspect that is a peculiar characteristic of extreme risks: the so-called shared burden effect, where individuals perceive the same risks as less severe if they affect a larger share of the collectivity. External validity is provided by examining whether laboratory-elicited risk perception predicts real-world extreme risk assessments.

Keywords: risk perception; catastrophic risk; prospect theory; experimental economics; shared burden effect (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-06-23, Revised 2025-06-23
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-rmg and nep-upt
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