Title

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

Date of this Version

6-1-2014

Document Type

Journal Article

Publication Details

Citation only

Page, L., Savage, D. A., & Torgler, B. (2014). Variation in risk seeking behaviour following large losses: A natural experiment. European Economic Review, 71, 121-131.

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Copyright © 2014 Elsevier B.V. All rights reserved.

2014 HERDC submission

ISSN

1742-7150

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.

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This document has been peer reviewed.