Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu We study whether natural disasters affect risk-taking behavior exploiting geographic variation in exposure to natural disasters. We conduct standard risk games (using real money) with randomly selected individuals in Indonesia and find that individuals who recently suffered a flood or earthquake exhibit more risk aversion than individuals living in otherwise like villages. The impact persists for several years, particularly if the disaster was severe. Some, but not all, of this effect is due to income losses. While we cannot rule out fundamental changes in risk preferences, data on subjective beliefs of the probability of a disaster occurring and the expected severity of such a disaster suggest that changes in perceptions of background risk are driving the more risk-averse behavior we observe. We show that access to insurance can partly offset this effect. Finally, we relate the observed experimental behavior to the propensity of respondents to take risks in their daily lives and show that an increase in riskaversion has important implications for economic development. shocks is borne by people in developing countries (Kahn, 2005). Developing countries are not necessarily more susceptible to natural disasters, but the impact is often more severe due to poor building practices and lack of adequate infrastructure. The enormity of these losses has focused attention on how natural disasters can undermine countries long-term efforts to attain and sustain economic growth (Freeman, 2000). This is becoming an increasingly important issue as climate change scientists have predicted an increase in the frequency of disasters like floods and tropical
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cyclones (IPCC, 2001).Natural disasters are traumatic events and it is thus likely that they affect individuals' behavior in the short and possibly longer term. We investigate the relationship between natural disasters and individuals' risk-taking behavior using experimental data from Indonesia. If natural disasters affect people's perceptions of the riskiness of their environment, then we might expect them to exhibit more risk averse behavior after experiencing a natural disaster. However, psychological theories suggest that individuals who already live in high risk environments may not be particularly concerned about the addition of small independent risks or that individuals may react emotionally (as opposed to cognitivel...