Combining Risk Attitudes in a Lottery Game and Flood Risk Protection Decisions in a Discrete Choice Experiment

Markus Glatt (), Roy Brouwer () and Ivana Logar
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Markus Glatt: Eawag, Swiss Federal Institute of Aquatic Science and Technology
Roy Brouwer: Eawag, Swiss Federal Institute of Aquatic Science and Technology

Environmental & Resource Economics, 2019, vol. 74, issue 4, No 4, 1533-1562

Abstract: Abstract Decision-making about flood protection is surrounded by outcome uncertainty. In this paper we look at the influence of individual risk attitudes on flood protection decisions. To this end, we combine the results of a lottery game with the findings from a discrete choice experiment focusing on flood risk reduction measures. We find that the inclusion of non-linear probability weighting increases the explanatory power of the choice model. The result is however sensitive to behavioral assumptions about decisions under uncertainty, as well as whether the lottery was played in the loss or gain domain. Including risk attitudes in the probability weighted model decreases marginal willingness to pay for measures with a low to intermediate flood risk reduction capacity and increases marginal willingness to pay for measures with a very high flood risk reduction effect. This has important implications for the social acceptability of flood reduction measures under different baseline conditions.

Keywords: Lottery game; Choice experiment; Flood risk; Bayesian model averaging; Risk attitudes (search for similar items in EconPapers)
JEL-codes: C11 C57 D81 Q54 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10640-019-00379-y

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