IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-16-47.html
   My bibliography  Save this paper

Dynamics in Risk Taking with a Low-Probability Hazard

Author

Listed:
  • Royal, Andrew

    (Resources for the Future)

Abstract

The experiment reported in this paper identifies the effect of experience on revealed risk attitudes by examining “one-shot” insurance choices made by subjects faced with a low-probability risk and their choices when they are faced with repeated exposure to an identical risk. I find that subjects engaged in greater risk taking when making repeated choices. Estimates from models that extend the standard utility and Bayesian frameworks offer evidence that subjects’ risk taking was influenced by whether previous outcomes were experienced directly and by inertia across repeated choices, though on average subjects appear to have otherwise weighted experienced outcomes in a manner consistent with rational Bayesian inference. I discuss how these and other insights apply to market behavior and policy in the presence of infrequent environmental hazards.

Suggested Citation

  • Royal, Andrew, 2016. "Dynamics in Risk Taking with a Low-Probability Hazard," RFF Working Paper Series dp-16-47, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-16-47
    as

    Download full text from publisher

    File URL: http://www.rff.org/RFF/documents/RFF-DP-16-47.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    flood risk; insurance; Bayesian learning; experiments;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

    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:rff:dpaper:dp-16-47. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Resources for the Future (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    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.