Learning from Extreme Catastrophes

46 Pages Posted: 6 Sep 2017 Last revised: 17 Oct 2018

See all articles by Shinichi Kamiya

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University

Noriyoshi Yanase

Keio University - Faculty of Business and Commerce

Date Written: May 1, 2018

Abstract

This article studies the effects of direct and indirect loss experience of extreme catastrophes on expectations concerning the likelihood of future events by investigating the earthquake insurance take-up of Japanese households after the two costliest disasters in history. Direct loss experiences caused the strongest reactions to extreme catastrophes, whereas risk belief updates were a nationwide phenomenon. Sharing personalized information contributed to strong and persistent indirect experience effects. Investigating the effect of past quake experience on reaction to a new major quake, we find that both availability bias and representativeness help explain the effect of past loss experiences. Furthermore, the gambler’s fallacy, as proposed by Tversky and Kahneman (1971), appears to play an important role after an indirect experience with a 1000-year earthquake.

Keywords: Catastrophe, Risk Belief, Availability Heuristic, Earthquake, Insurance

JEL Classification: D12, D81, D83, G22

Suggested Citation

Kamiya, Shinichi and Yanase, Noriyoshi, Learning from Extreme Catastrophes (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3031124 or http://dx.doi.org/10.2139/ssrn.3031124

Shinichi Kamiya (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Noriyoshi Yanase

Keio University - Faculty of Business and Commerce ( email )

2-15-45 Mita
Minato-ku
Tokyo 108-8345
Japan
1088345 (Fax)

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