The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment

Abstract

We estimate the impact of Kenya's postelection crisis on individual risk preferences. The crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, creating plausibly exogenous variation in exposure to civil conflict prior to the survey. Our results indicate that the postelection crisis sharply increased individual risk aversion. Immediately after the crisis, the fraction of subjects displaying extreme risk aversion increased by more than 80%. Findings remain robust when we use an IV estimation strategy that exploits random assignment of respondents to waves of surveying. The crisis also affected trust, social capital, and beliefs about the economy.

Risk, Loss, and Ambiguity Aversion after a Natural Disaster

“…Similarly, both Kim and Lee (2014) and Jakiela and Ozier (2015) use hypothetical lottery questions from longitudinal surveys to study the impact of the Korean war, and post-election (2007) violence in Kenya, respectively, on risk preferences. Both studies find significantly higher levels of risk aversion among impacted populations.…”

Do Risk Preferences Change? Evidence from the Great East Japan Earthquake

“…Online Appendix Table C3 confirms the validity of our risk measures; the results show a significant correlation between our risk measures and risky behavior (gambling, drinking, and smoking) with the expected signs. 17 We also conduct analysis that does not depend how we construct these two cardinal risk-preference measures in Subsection IVA. Specifically, we exploit the panel nature of the data, and create an ordinal risk measure that takes 1 if the choice of risk category after the Earthquake is higher (i.e., more risk averse) than the one before the Earthquake, −1 if opposite, and 0 if there is no change.…”

“…The mean age of the individuals is 52.0 years, 47 percent are male, and about 70 percent are employed. 17 Another concern is that our risk measures capture only risk preferences in the financial domain. However, Dohmen et al (2011) and Vieider et al (2015) show that risk preferences in different domains or contexts are not perfectly but strongly correlated to each other.…”

Firm Responses to Violent Conflicts

“…At the micro-level, the effort to understand the economics of violent conflicts has mostly focused on individuals, households and local communities (Verwimp et al, 2019). In particular, researchers have studied the impact of violent conflicts on health, education, and individuals' attitudes towards risk (Blattman and Miguel, 2010, Voors et al, 2012, Brown et al, 2019, Jakiela and Ozier, 2019. Very rarely have researchers focused on the impact for the business sector (Guidolin andLa Ferrara, 2007, Klapper et al, 2013).…”