Research Highlights Featured Chart
April 23, 2018
Re-evaluating risk
Rescue teams search for missing people in Natori, Japan, after the March 2011 earthquake.
Iliya Pitalev/RIA Novosti
It was a cool afternoon in mid-March seven years ago when Japan was suddenly rocked by the most violent earthquake the island nation had ever seen.
Registering 9.1 on the Richter Scale, it caused a tsunami with 30-foot waves that caused $300 billion in destruction and nearly 20,000 deaths.
The trauma of the event no doubt had profound impacts on the survivors. There was, of course, the immediate concern for rebuilding and the danger posed by several damaged nuclear reactors. Longer term, it could alter the way they conducted themselves in the world. But how? Would living through such an event make them more cautious and conservative, or emboldened by having survived?
The answer may depend on their gender, according to a paper in the April issue of the American Economic Journal: Applied Economics.
Examining national survey data, authors Chie Hanaoka, Hitoshi Shigeoka, and Yasutora Watanabe found that men in areas hit hardest by the earthquake became more risk tolerant while women became slightly more risk averse.
Figure 5 from Hanaoka et al. (2018)
The chart above from their paper compares how risk aversion for men and women shifted over the long-run, comparing data collected before the earthquake hit in 2011 to data from 2016. In total, it represents responses from 2,076 individuals.
The dots represent various groups of individuals based on how intensely they experienced the earthquake, and the dots’ size corresponds to the number of people in each group. Panel B shows that risk aversion declined for men in higher intensity areas while Panel C demonstrates that it increased slightly for women.
The authors also found that effects were lasting, with the same impacts on risk aversion showing up even five years later.
The paper contributes to a growing literature about how traumatic events — a financial crisis, violent conflict, natural disaster, etc. — shape a person’s tolerance for risk and, thus, their decision making.
Standard models assume that an individual’s risk preferences are stable across time, but as this and other studies suggest, traumatic events can change that.