Revealing risk preferences Evidence from Turkeys 2023 Earthquake

TL;DR

This study investigates how the 2023 Turkey earthquake affected individuals' risk preferences, revealing increased risk-taking among affected females and linking prudence to protective behaviors and occupational stability post-disaster.

Contribution

It provides novel experimental evidence on the impact of natural disasters on risk preferences, especially higher-order preferences like prudence, and clarifies contradictory prior findings.

Findings

Heavily affected individuals show increased risk-taking, especially females.

Higher house damage correlates with increased risk aversion.

Prudence is positively associated with self-protective behaviors and occupational stability.

Abstract

The study on risk preferences and its potential changes amid natural catastrophes has been subject of recent study, producing contradictory findings. An often proposed explanation specifically distinguishes between the opposite effect of realized and unrealized losses on risk preferences. Moreover, higher-order risk preferences and its relation to post-disaster behaviors remain unexplored, despite potential theoretical implications. We address these gaps in the literature by conducting experiments with 600 individuals post Turkeys 2023 catastrophic earthquake, specifically heavily affected individuals who are displaced, those who are not and a control group. Results indicate higher risk-taking in heavily affected individuals when compared to unaffected individuals. Our results are specifically driven by affected females. We find no pre existing differences in risk preferences between earthquake and control areas using 2012 data. Within the heavily affected group of individuals, higher house damage, our proxy for realized losses, increases risk aversion. Regarding higher-order risk preferences for individuals heavily affected by the earthquake, we find that prudence is positively associated with selfprotective behaviors after the earthquake, specifically internal migration and/or displacement. While precautionary savings shows initially no correlation to prudence, a positive association emerges when considering that prudence is also related to occupational choices, with individuals with stable incomes and who save being more prudent. Our results contribute insights into how disasters influence risk preferences, specifically aiming to address contradictory findings in the literature, while presenting novel evidence on the relationship between prudence and post-natural disaster behaviors.