Natural disaster and risk preferences: evidence from Sri Lankan twins

Nathan Kettlewell, Fruhling Rijsdijk, Sisira Siribaddana, Athula Sumathipala, Agnieszka Tymula, Helena Zavos and Nicholas Glozier

Applied Economics, 2024, vol. 56, issue 5, 558-581

Abstract: We estimate whether risk preferences are affected by traumatic events by using a unique survey of Sri Lankan twins which contains information on individual’s exposure to the 2004 Indian Ocean Tsunami, validated measures of mental health and risk preferences, and a rich set of control variables. Our estimation strategy utilizes variation in experiences within twin pairs and allows us to explore wealth shocks and/or changes in mental health as mechanisms. We find that exposure to the tsunami lead to less risk aversion, a result that is not explained by mental health.

Date: 2024
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DOI: 10.1080/00036846.2023.2168616

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