Divergence between individual perceptions and objective indicators of tail risks: Evidence from floodplain residents in New York City

By W. Botzen, Howard Kunreuther, E. Michel-Kerjan. Judgment and Decision Making, 2015

146 citations recorded by the source corpus.

This study provides the first comprehensive analysis of individual perceptions of tail risks. It focuses not only on the probability, as has been studied by Nicholas Barberis and others, but also on anticipation of damage. We examine how those perceptions relate to experts’ estimates and publicly available risk information. Behavioural factors—availability bias, threshold models of choice, worry and trust—are found to have a significant impact on risk perceptions. The probability of tail events is overestimated, which is consistent with probability weighting in prospect theory. Potential damage is underestimated, one reason why individuals do not invest in protective measures.

Subfields: General Decision Sciences, Global and Planetary Change, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/d1649071126246a62730c3960642c2268ae7ffb8

Citations in the corpus

• Examining Flood Insurance Claims in the United States: Six Key Findings (2017, unknown): “Overall, a report by the New York City Mayor’s Office published after Sandy revealed that 80 percent of residents living in areas inundated by storm surge had no flood insurance (New York City, 2013).”
• The Role of Insurance in Reducing Losses from Extreme Events: The Need for Public–Private Partnerships (2015, unknown): “6 Botzen et al. (2015).”