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Feeling Is Believing? Evidence From Earthquake Shaking Experience and Insurance Demand
Author(s) -
Lin Xiao
Publication year - 2020
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/jori.12291
Subject(s) - feeling , fallacy , context (archaeology) , actuarial science , economics , psychology , social psychology , history , philosophy , archaeology , epistemology
Abstract This article investigates how a particular type of personal experience—“no‐loss” experience with minor earthquakes—affects financial decisions such as insurance purchases. We find a small temporary increase in insurance demand in areas that experience a shaking with moderate intensity, or multiple shakings with light intensity. An analysis of Google Trends data confirms an immediate increase in interest in insurance though not in seismic retrofit. These findings extend the applicability of the availability bias and hot‐hand fallacy to a broader context: financial decisions may be motivated by not only loss experience, but also recent no‐loss experience, as people may extrapolate their “feeling” to something worse. However, such experience does not motivate long‐term behavioral change.