Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster

This study explores people’s risk attitudes after having suffered large
real-world losses following a natural disaster. Using the margins of the
2011 Australian floods (Brisbane) as a natural experimental setting, we
find that homeowners who were victims of the floods and face large losses
in property values are 50% more likely to opt for a risky gamble – a
scratch card giving a small chance of a large gain ($500,000) – than for
a sure amount of comparable value ($10). This finding is consistent with
prospect theory predictions of the adoption of a risk-seeking attitude after
a loss.