Risk, Loss, and Ambiguity Aversion after a Natural Disaster

We use survey and experimental methods to examine how residents’ risk, loss, and ambiguity aversion are affected by a tornado event. We survey residents of the Oklahoma City area where a 2013 tornado resulted in massive damage and 24 fatalities. Our evaluation shows that risk aversion increased for those who were injured by the tornado. However, persons who lost a friend or neighbor were emboldened, experiencing reduced risk aversion. Ambiguity aversion increased for those who lost their residence or had property damage, and loss aversion increased for those who lost a friend or neighbor. Risk preferences of individual citizens in disasters are affected in important and intricate ways, and these alterations may influence choices such as how and when to rebuild private homes, businesses and invest in a region’s critical public infrastructure.