Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster

Lionel Page, David Savage and Benno Torgler

No 3878, CESifo Working Paper Series from CESifo

Abstract: This study explores people’s risk attitudes 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 of 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: 2012
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster (2012)
Working Paper: Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster (2012)
Working Paper: Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster (2012)
Working Paper: Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural Disaster (2012)
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