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

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.


Issue Date:
2012-07
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/130900
Total Pages:
21
JEL Codes:
D03; D81; C93
Series Statement:
ES
54.2012




 Record created 2017-04-01, last modified 2017-08-26

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