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

Lionel Page, David Savage and Benno Torgler
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Benno Torgler: Queensland University of Technology

No 2012.54, Working Papers from Fondazione Eni Enrico Mattei

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: 2012-07
New Economics Papers: this item is included in nep-cbe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
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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