IDEAS home Printed from https://ideas.repec.org/p/hic/wpaper/188.html
   My bibliography  Save this paper

The Perception of Lethal Risks - Evidence from a Laboratory Experiment

Author

Listed:
  • Tilman Br�ck

    (Stockholm International Peace Research Institute (SIPRI), Institute for the Study of Labor (IZA) and International Security and Development Center (ISDC))

  • Manuel Schubert

    (University of Passau)

Abstract

We run a novel experiment to explore the relationship between the perception of real-life risks and the demand for risk reduction. Subjects play a series of loss lotteries in which the odds are matched to the likelihood of lethal events in real life. For each risk, subjects can pay premiums in order to reduce the likelihood of total bankruptcy. Our results show a complex interplay of mortality perception and demand for risk reduction. We observe that perceived annual mortality positively affects the demand for risk reduction. Moreover, we find certain risk characteristics to affect perceived mortality, others to drive the demand for risk reduction, and some to alter both. Our findings suggest that 30 percent of all insurance payments are due to biased perceptions of annual mortality while perfect precaution could lower payments by 45 percent. Implications for risk management policies are discussed.

Suggested Citation

  • Tilman Br�ck & Manuel Schubert, 2014. "The Perception of Lethal Risks - Evidence from a Laboratory Experiment," HiCN Working Papers 188, Households in Conflict Network.
    • Handle: RePEc:hic:wpaper:188
    as

    Download full text from publisher

    File URL: https://hicn.org/wp-content/uploads/2012/06/HiCN-WP-188.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benjamin, Daniel K & Dougan, William R, 1997. "Individuals' Estimates of the Risks of Death: Part I--A Reassessment of the Previous Evidence," Journal of Risk and Uncertainty, Springer, vol. 15(2), pages 115-133, November.
    2. Olivier Chanel & Graciela Chichilnisky, 2009. "The influence of fear in decisions: Experimental evidence," Journal of Risk and Uncertainty, Springer, vol. 39(3), pages 271-298, December.
    3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    4. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    5. Jenni, Karen E & Loewenstein, George, 1997. "Explaining the "Identifiable Victim Effect."," Journal of Risk and Uncertainty, Springer, vol. 14(3), pages 235-257, May-June.
    6. Sunstein, Cass R, 1997. "Bad Deaths," Journal of Risk and Uncertainty, Springer, vol. 14(3), pages 259-282, May-June.
    7. Susan Chilton & Michael Jones-Lee & Francis Kiraly & Hugh Metcalf & Wei Pang, 2006. "Dread risks," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 165-182, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhengtao Li & Henk Folmer, 2023. "Air pollution and perception-based averting behaviour in the Jinchuan mining area, China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(2), pages 477-505, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Kourouxous & Thomas Bauer, 2019. "Violations of dominance in decision-making," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 209-239, April.
    2. Liu, Jia & Sonntag, Axel & Zizzo, Daniel John, 2022. "Information defaults in repeated public good provision," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 356-369.
    3. Johannes Abeler & Daniele Nosenzo, 2015. "Self-selection into laboratory experiments: pro-social motives versus monetary incentives," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 195-214, June.
    4. Manja Gärtner & Anna Sandberg, 2017. "Is there an omission effect in prosocial behavior? A laboratory experiment on passive vs. active generosity," PLOS ONE, Public Library of Science, vol. 12(3), pages 1-21, March.
    5. Henrik Andersson & Nicolas Treich, 2011. "The Value of a Statistical Life," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 17, Edward Elgar Publishing.
    6. Lenka Fiala & Charles N. Noussair, 2017. "Charitable Giving, Emotions, And The Default Effect," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1792-1812, October.
    7. Zackary Hawley & Danyang Li & Kurt Schnier, 2012. "Organ Donation via Changes in the Default Choice or Allocation Rule," Experimental Economics Center Working Paper Series 2012-15, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    8. Winslott Hiselius, Lena, 2003. "The Value of Road and Railway Safety - an Overview," Working Papers 2003:13, Lund University, Department of Economics.
    9. Isabel Marcin & Andreas Nicklisch, 2014. "Testing the Endowment Effect for Default Rules," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2014_01, Max Planck Institute for Research on Collective Goods.
    10. Michael Jones-Lee, 2015. "Dealing with safety in UK public sector project appraisal," Chapters, in: Carol Mansfield & V. K. Smith (ed.), Benefit–Cost Analyses for Security Policies, chapter 5, pages 117-139, Edward Elgar Publishing.
    11. Jones-Lee, M. & Spackman, M., 2013. "The development of road and rail transport safety valuation in the United Kingdom," Research in Transportation Economics, Elsevier, vol. 43(1), pages 23-40.
    12. Li, Danyang & Hawley, Zackary & Schnier, Kurt, 2013. "Increasing organ donation via changes in the default choice or allocation rule," Journal of Health Economics, Elsevier, vol. 32(6), pages 1117-1129.
    13. repec:cup:judgdm:v:10:y:2015:i:2:p:198-203 is not listed on IDEAS
    14. Gärtner, Manja & Sandberg, Anna, 2014. "Is there an omission effect in prosocial behavior?," SSE Working Paper Series in Economics 2014:1, Stockholm School of Economics, revised 03 Dec 2015.
    15. Treffers, T. & Koellinger, Ph.D. & Picot, A.O., 2012. "In the Mood for Risk? A Random-Assignment Experiment Addressing the Effects of Moods on Risk Preferences," ERIM Report Series Research in Management ERS-2012-014-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    16. Altmann, Steffen & Falk, Armin & Grunewald, Andreas, 2013. "Incentives and Information as Driving Forces of Default Effects," IZA Discussion Papers 7610, Institute of Labor Economics (IZA).
    17. Koellinger, Ph.D. & Treffers, T., 2012. "Joy leads to Overconfidence, and a Simple Remedy," ERIM Report Series Research in Management ERS-2012-001-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    18. Feri, Francesco & Giannetti, Caterina & Jentzsch, Nicola, 2016. "Disclosure of personal information under risk of privacy shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 138-148.
    19. Kochi, Ikuho & Taylor, Laura O., 2011. "Risk Heterogeneity and the Value of Reducing Fatal Risks: Further Market-Based Evidence," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 2(3), pages 1-28, August.
    20. W. Viscusi & Elissa Gentry, 2015. "The value of a statistical life for transportation regulations: A test of the benefits transfer methodology," Journal of Risk and Uncertainty, Springer, vol. 51(1), pages 53-77, August.
    21. Scotton, Carol R. & Taylor, Laura O., 2011. "Valuing risk reductions: Incorporating risk heterogeneity into a revealed preference framework," Resource and Energy Economics, Elsevier, vol. 33(2), pages 381-397, May.

    More about this item

    Keywords

    risk perception; lethal risks; experiment; insurance;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hic:wpaper:188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tilman Brück or the person in charge or the person in charge or the person in charge (email available below). General contact details of provider: https://hicn.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.