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Evolution of Subjective Hurricane Risk Perceptions: A Bayesian Approach

David Kelly, David Letson, Forest Nelson (), David S. Nolan () and Daniel Solis
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Forest Nelson: Department of Economics, Henry B. Tippie College of Business Administration, University of Iowa
David S. Nolan: Rosenstiel School of Marine and Atmospheric Science, University of Miami

No 905, Working Papers from University of Miami, Department of Economics

Abstract: This paper studies how individuals update subjective risk perceptions in response to hurricane track forecast information, using a unique data set from an event market, the Hurricane Futures Market (HFM). We derive a theoretical Bayesian framework which predicts how traders update their perceptions of the probability of a hurricane making landfall in a certain range of coastline. Our results suggest that traders behave in a way consistent with Bayesian updating but this behavior is based on the perceived quality of the information received.

Keywords: risk perceptions; learning; Bayesian learning; event markets; prediction markets; favorite-longshot bias; hurricanes (search for similar items in EconPapers)
JEL-codes: C53 C9 D83 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2009-02-27
New Economics Papers: this item is included in nep-for
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Forthcoming: Under Review

Downloads: (external link) First version, 2009 (application/pdf)

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Journal Article: Evolution of subjective hurricane risk perceptions: A Bayesian approach (2012) Downloads
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