Exploring the Role of Emotions in Decisions Involving Catastrophic Risks: Lessons from a Double Investigation

Olivier Chanel, Graciela Chichilnisky, Sébastien Massoni and Jean-Christophe Vergnaud

A chapter in The Economics of the Global Environment, 2016, pp 553-575 from Springer

Abstract: Abstract Natural disasters due to climate change (like floods, hurricanes, heat waves or droughts) combine a risk of large losses and a low probability of occurrence, requiring decisions to be made in uncertain universes. However, the inability of standard decision under uncertainty models to provide rankings when some outcomes are catastrophic impedes rational (public) decision-making. This paper examines the role of emotions in individuals’ choices among alternatives involving catastrophic events, either in real life (flooding) or artificial (laboratory experiment) situations. We report a survey on 599 respondents aimed at determining how people exposed to different levels of flood risk form beliefs and make decisions under uncertainty before and after emotion-generating events. Data on their emotions, the emotions they expect to experience, their personality and psychological determinants, their symptoms before and after emotion-generating events are collected and analyzed. In parallel with this survey, experimental protocols replicate the emotional experience of a catastrophe and measure its impact on behavior and formation of beliefs. Emotions are induced by framing effects and measured through a self-declared worry scale. We collect behavioral data (insurance choice, subjective beliefs, performance) and measure how they are affected by the emotions felt during the decision-making. These protocols test some assumptions in the survey using experimental paradigms from psychophysics that allow us to control the sources of uncertainty experienced by the subjects. Results confirm that emotions connected with the nature of the risk can significantly affect desire to reduce it. The survey provides valuable material for comparative analysis, revealing how actual experience of an anticipated event affects decisions. The experiments show that emotions affect the decision-making process and the forming of probabilistic beliefs.

Keywords: Flood Risk; Expect Utility; Subjective Probability; Protective Device; Insurance Premium (search for similar items in EconPapers)
Date: 2016
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Working Paper: Exploring the Role of Emotions in Decision Involving Catastrophic Risk: Lessons from a Double Investigation (2016)
Working Paper: Exploring the Role of Emotions in Decision Involving Catastrophic Risk: Lessons from a Double Investigation (2016)
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DOI: 10.1007/978-3-319-31943-8_24

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