Determinants of Probability Neglect and Risk Attitudes for Disaster Risk: An Online Experimental Study of Flood Insurance Demand among Homeowners

Abstract

Little is known about why individuals place either a high or a very low value on mitigating risks of disaster‐type events, like floods. This study uses panel data methods to explore the psychological factors affecting probability neglect of flood risk relevant to the zero end‐point of the probability weighting function in Prospect Theory, and willingness‐to‐pay for flood insurance. In particular, we focus on explanatory variables of anticipatory and anticipated emotions, as well as the threshold of concern. Moreover, results obtained under real and hypothetical incentives are compared in an experiment with high experimental outcomes. Based on our findings, we suggest several policy recommendations to overcome individual decision processes, which may hinder flood protection efforts.

Lessons for climate policy from behavioral biases towards COVID-19 and climate change risks

“…Botzen et al, 2015 , Bubeck et al, 2012 , Gelino and Reed, 2020 , Gillingham and Palmer, 2014 , Green, 2009 , Healy and Malhotra, 2009 , Kellens et al, 2013 , Kunreuther and Slovic, 2020 , Robinson and Botzen, 2019 , Sterman, 2011 .…”

Flood risk behaviors of United States riverine metropolitan areas are driven by local hydrology and shaped by race

“…Flooding may lead to migration from floodplains, yet populations may return within a decade (25) when the memories of living witnesses in flood-prone regions are lost across generations (23). Take-up rates in flood insurance programs tend to increase after catastrophic flooding events and then lapse during periods of calm (10,28). Taken together, this evidence suggests that communities lose their risk awareness over time during periods of calm and highlights that in the absence of new or strengthened regulations or where existing ones are not enforced, people continue to build and live in risk-prone areas.…”

“…Conceptual models of flooding risk perceptions and insurance demand are often centered on the belief that residents have the means to purchase insurance and vary only in how they perceive risk (10). While this paradigm possibly holds in some cities, research suggests other communities may be faced with few or no options to mitigate flooding (27) or to relocate (17,34).…”

“…Strategies for mitigating flooding risk vary within and across communities (10,11) and are mediated by the political institutions and economic interests that dominate local decision-making around land use and real estate development (12). Prior research has characterized flood mitigation practices as either being "green" (for managing their hazards through migration) or "technological" (reliant on flood control infrastructure for risk mitigation) (13).…”

Relationship Between Community Attitudes and Flood Mitigation in the Welang Watershed in the Karangketug Urban Village, Pasuruan City

“…A person's attitude to danger is generally shown by one's optimism (the belief that the danger of disaster will not happen to me), self-confidence or illusion control (I can overcome the danger that will happen to me), and immunity (a danger that occurs cannot be dangerous myself) (Ahmad et al, 2017). The attitude of the societies in implementing flood mitigation individually, are formed due to the perception and awareness of the dangers caused by the disaster so that the community will tend to make efforts to minimize the impact caused by a disaster (Robinson & Botzen, 2019). The attitude of the societies towards mitigating flood disasters individually is influenced by knowledge of the occurrence of disasters and the impact that are caused by a disaster.…”