Variation in risk seeking behaviour following large losses: A natural experiment

Lionel Page, David Savage and Benno Torgler

European Economic Review, 2014, vol. 71, issue C, 121-131

Abstract: This study explores people׳s risk taking behaviour after having suffered large real-world losses following a natural disaster. Using the margins of the 2011 Australian floods (Brisbane) as a natural experimental setting, we find that homeowners who were victims of the floods and face large losses in property values are 50% more likely to opt for a risky gamble – a scratch card giving a small chance of a large gain ($500,000) – than for a sure amount of comparable value ($10). This finding is consistent with prospect theory predictions regarding the adoption of a risk-seeking attitude after a loss.

Keywords: Decision under risk; Large losses; Natural experiment (search for similar items in EconPapers)
JEL-codes: C93 D03 D81 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:71:y:2014:i:c:p:121-131

DOI: 10.1016/j.euroecorev.2014.04.009

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