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Risk, Loss, and Ambiguity Aversion after a Natural Disaster

Author

Listed:
  • Robert Shupp

    (Michigan State University)

  • Scott Loveridge

    (Michigan State University)

  • Mark Skidmore

    (Michigan State University)

  • Jungmin Lim

    (Michigan State University)

  • Cynthia Rogers

    (University of Oklahoma)

Abstract

We use survey and experimental methods to examine how residents’ risk, loss, and ambiguity aversion are affected by a tornado event. We survey residents of the Oklahoma City area where a 2013 tornado resulted in massive damage and 24 fatalities. Our evaluation shows that risk aversion increased for those who were injured by the tornado. However, persons who lost a friend or neighbor were emboldened, experiencing reduced risk aversion. Ambiguity aversion increased for those who lost their residence or had property damage, and loss aversion increased for those who lost a friend or neighbor. Risk preferences of individual citizens in disasters are affected in important and intricate ways, and these alterations may influence choices such as how and when to rebuild private homes, businesses and invest in a region’s critical public infrastructure.

Suggested Citation

  • Robert Shupp & Scott Loveridge & Mark Skidmore & Jungmin Lim & Cynthia Rogers, 2017. "Risk, Loss, and Ambiguity Aversion after a Natural Disaster," Economics of Disasters and Climate Change, Springer, vol. 1(2), pages 121-142, July.
    • Handle: RePEc:spr:ediscc:v:1:y:2017:i:2:d:10.1007_s41885-017-0013-2
    DOI: 10.1007/s41885-017-0013-2
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    Cited by:

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    2. Adam Rose, 2022. "Behavioral Economic Consequences of Disasters: A Basis for Inclusion in Benefit–Cost Analysis," Economics of Disasters and Climate Change, Springer, vol. 6(2), pages 213-233, July.
    3. repec:cup:judgdm:v:17:y:2022:i:4:p:745-767 is not listed on IDEAS
    4. Bülow, Catharina Wolff von & Liu, Xiufeng, 2020. "Ready-made oTree applications for the study of climate change adaptation behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 88(C).
    5. Krčál, Ondřej & Staněk, Rostislav & Slanicay, Martin, 2019. "Made for the job or by the job? A lab-in-the-field experiment with firefighters," Research in Economics, Elsevier, vol. 73(4), pages 271-276.
    6. Massimo Filippini & Nilkanth Kumar & Suchita Srinivasan, 2021. "Behavioral Anomalies and Fuel Efficiency: Evidence from Motorcycles in Nepal," CER-ETH Economics working paper series 21/353, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Tang, Linjia & Guo, Yingying & Zha, Jianfeng & Zheng, Weiwei, 2024. "Acquiescence or Redemption: CEO’s early-life experience of environmental pollution and corporate green innovation," Journal of Business Research, Elsevier, vol. 173(C).
    8. Ahlerup, Pelle & Sundström, Aksel & Jagers, Sverker C & Sjöstedt, Martin, 2023. "Drought and Political Trust," Working Papers in Economics 832, University of Gothenburg, Department of Economics.
    9. Freudenreich, Hanna & Musshoff, Oliver, 2022. "Experience of losses and aversion to uncertainty - experimental evidence from farmers in Mexico," Ecological Economics, Elsevier, vol. 195(C).
    10. Daewoung Choi & Hyunju Shin & Kyoungmi Kim, 2023. "CEO’s Childhood Experience of Natural Disaster and CSR Activities," Journal of Business Ethics, Springer, vol. 188(2), pages 281-306, November.
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    More about this item

    Keywords

    Natural disaster; Risk; loss; ambiguity; Tornado; Experiment; Survey;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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