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Activity Number: 411 - Innovative Modeling of Risks in the SAMSI GDRR Program
Type: Topic Contributed
Date/Time: Wednesday, August 5, 2020 : 1:00 PM to 2:50 PM
Sponsor: Section on Risk Analysis
Abstract #312812
Title: Effects of Risk Attitudes and Information Friction on Willingness to Pay for Precautionary Building Standards
Author(s): Sebastain Awondo* and Kevin Egan and Lawrence Powell
Companies: University of Alabama and University of Toledo and University of Alabama
Keywords: Risk attitudes; Information friction; Precautionary building standards; Homeowners insurance; Willingness to pay; Field experiment
Abstract:

We use a field experiment to estimate effects of higher order risk attitudes and information friction on willingness to pay (WTP) for precautionary building standards with insurance discounts. To elicit risk attitudes and WTP, we employ 50-50 model-free risk apportionment lotteries and WTP experiments. Results reveal significant effects of second, third, and fourth order risk attitudes and information friction on homeowners’ WTP for precautions. We find that risk-lovers are also prudent and intemperate (mixed risk-loving), and exhibit dichotomous behaviors with mixed risk-averters. Overall, mixed risk-averters are willing to pay more than mixed risk-lovers for higher levels of precaution. Mixed risk-averter's WTP increases with decreases in information friction about the performance of precaution while that of mixed risk-lovers decreases. Risk-loving, prudent, and intemperate homeowners exhibit the highest WTP.


Authors who are presenting talks have a * after their name.

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