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Title:Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster PDF Logo
Authors:Page, Lionel
Savage, David A.
Torgler, Benno
Issue Date:2012
Series/Report no.:CESifo Working Paper: Behavioural Economics 3878
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.
Subjects:decision under risk
large losses
natural experiment
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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