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.
