Date of This Version
August 2012
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.
Recommended Citation
Page, Lionel; Savage, David; and Torgler, Benno, "Variation in Risk Seeking Behavior in a Natural Experiment on Large Losses Induced by a Natural" (August 06, 2012). Fondazione Eni Enrico Mattei Working Papers. Paper 705.
https://services.bepress.com/feem/paper705