Understanding Individual Risk Preferences

Many theories of decision making under risk focus on risk perceptions, the most conventional of which are the likelihoods of occurrence and an evaluation of the conditional outcomes. Focusing on hurricane risk, we examine likelihood, expected damage, and expected loss using responses collected from southeastern coastal counties of the USA via mail or online in different periods. Our results indicate that subjective probability of category 3 hurricane, expected damage, and perceived loss is affected by the number of years residents have lived on the coast, previous hurricane exposures, prior experience of flooding damage, education, and gender. Perceived risk is significantly higher in North Carolina and lower in Mississippi relative to Texas. Our results indicate a significant anchoring effect.