@article{e1b8bd70c8f94c798a923abcede6c019,
title = "Do people feel less at risk? Evidence from disaster experience",
abstract = "Past studies typically have focused on whether people perceive more rare risk after experiencing catastrophic disasters. We show that people can also feel less risk with unexpected lucky disaster experience. By exploring a novel identification strategy based on households{\textquoteright} expectations, we find that households perceive less (more) risk when they experience disasters that have lower (higher) fatalities than what was expected. This opposite experience effect of rare disasters is substantial. A one standard deviation increase in the negative (positive) experience shock is associated with a 1.71% decrease (a 1.31% increase) in the life insurance-to-portfolio ratio. We discuss three possible mechanisms to account for our empirical findings: incomplete information learning, salience theory, and change in risk preferences.",
keywords = "Disaster experiences, Incomplete information learning, Risk perceptions, Risk preferences, Salience theory",
author = "Ming Gao and Yu-Jane Liu and Yushui Shi",
note = "Funding Information: We are grateful to Toni M. Whited (the editor) and an anonymous referee for constructive and insightful comments and suggestions that have significantly improved the paper. We also thank Brad M. Barber, Robert J. Barro, Jianwei Dang, Bing Han, David Hirshleifer, Harrison Hong, Ji-Chai Lin, Qi Liu, Juanjuan Meng, Terrance Odean, Chih-Ling Tsai, Larry Y. Tzeng, Wei Xiong, Jiangmin Xu, Zhixue Zhang, and session or seminar participants at the Financial Management Association International 2014 annual meeting, the Erasmus University Research in Behavioral Finance Conference 2014, Peking University, Tsinghua University, and Zhejiang University for their helpful comments and suggestions. Ming Gao acknowledges financial support from the National Natural Science Foundation of China (grant number 71703004). Yu-Jane Liu acknowledges financial support from the National Natural Science Foundation of China (grant number 71673007). All errors are our own. Funding Information: We are grateful to Toni M. Whited (the editor) and an anonymous referee for constructive and insightful comments and suggestions that have significantly improved the paper. We also thank Brad M. Barber, Robert J. Barro, Jianwei Dang, Bing Han, David Hirshleifer, Harrison Hong, Ji-Chai Lin, Qi Liu, Juanjuan Meng, Terrance Odean, Chih-Ling Tsai, Larry Y. Tzeng, Wei Xiong, Jiangmin Xu, Zhixue Zhang, and session or seminar participants at the Financial Management Association International 2014 annual meeting, the Erasmus University Research in Behavioral Finance Conference 2014, Peking University, Tsinghua University, and Zhejiang University for their helpful comments and suggestions. Ming Gao acknowledges financial support from the National Natural Science Foundation of China (grant number 71703004 ). Yu-Jane Liu acknowledges financial support from the National Natural Science Foundation of China (grant number 71673007 ). All errors are our own. Publisher Copyright: {\textcopyright} 2020",
year = "2020",
month = dec,
doi = "10.1016/j.jfineco.2020.06.010",
language = "English",
volume = "138",
pages = "866--888",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "3",
}