Variation in risk seeking behaviour following large losses : a natural experiment

Page, Lionel, Savage, David, & Torgler, Benno (2014) Variation in risk seeking behaviour following large losses : a natural experiment. European Economic Review, 71, pp. 121-131.

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Abstract

This study explores people's risk taking behaviour after having suffered large real-world losses following a natural disaster. Using the margins of the 2011 Australian floods (Brisbane) as a natural experimental setting, we find that homeowners who were victims of the floods and face large losses in property values are 50% more likely to opt for a risky gamble -- a scratch card giving a small chance of a large gain ($500,000) -- than for a sure amount of comparable value ($10). This finding is consistent with prospect theory predictions regarding the adoption of a risk-seeking attitude after a loss.

Impact and interest:

4 citations in Scopus
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3 citations in Web of Science®

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ID Code: 70565
Item Type: Journal Article
Refereed: Yes
Additional URLs:
Keywords: decision under risk, large losses, natural experiment
DOI: 10.1016/j.euroecorev.2014.04.009
ISSN: 0014-2921
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Deposited On: 27 Apr 2014 23:15
Last Modified: 11 Nov 2014 04:51

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