Individual risk preferences and natural disasters
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Using exogenous variation in exposure to the 1997 Indonesian forest fires and accompanying smoke clouds, we document persistent effects of exposure to such natural disasters on individual risk preferences. People who are more intensely exposed to the fires and subsequent air pollution exhibit lower risk aversion and the effects last even 10 years after exposure but ultimately die down and can no longer be measured 18 years after exposure. The effects seem to be more pronounced among women, younger cohorts, and individuals living in lower socio-economic conditions. While some of these results are in line with those found in previous studies, there are also significant differences, particularly when it comes to the persistence of these effects over time, which point to the fact that the type of natural disaster considered and other context-specific factors matter.
Abstract
Using exogenous variation in exposure to the 1997 Indonesian forest fires and accompanying smoke clouds, we document persistent effects of exposure to such natural disasters on individual risk preferences. People who are more intensely exposed to the fires and subsequent air pollution exhibit lower risk aversion and the effects last even 10 years after exposure but ultimately die down and can no longer be measured 18 years after exposure. The effects seem to be more pronounced among women, younger cohorts, and individuals living in lower socio-economic conditions. While some of these results are in line with those found in previous studies, there are also significant differences, particularly when it comes to the persistence of these effects over time, which point to the fact that the type of natural disaster considered and other context-specific factors matter.