Attitudes Towards Risk in the Wake of a Rare Event

Abstract

This paper investigates the impact of rare-event experiences and observations on risk taking. Matching detailed individual, household, and community-level surveys with behavioral games data, we explore the mechanisms that underlie individual risk-taking after a natural disaster. Unlike the existing literature, which focuses mostly on community-level economic and disaster data, our unique dataset allows us to match detailed interviews on individual risk perceptions and loss experiences with game choices. In the context of rural Punjab, Pakistan, we find that having observed others’ losses is as important as personal experience of loss, although the type of loss also matters. In multiple rounds of the game, we also find that the change in strategy between rounds depends on the severity of losses experienced or observed and on the number of floods experienced over one’s lifetime.