The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment
37 Pages Posted: 20 Apr 2016
Date Written: October 14, 2015
This study estimates the impact of Kenya?s post-election violence on individual risk preferences. Because the crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, this timing creates plausibly exogenous variation in exposure to civil conflict by the time of the survey. The study measures individual risk preferences using hypothetical lottery choice questions, which are validated by showing that they predict migration and entrepreneurship in the cross-section. The results indicate that the post-election violence sharply increased individual risk aversion. Immediately after the crisis, the fraction of subjects who are classified as either risk neutral or risk loving dropped by roughly 26 percent. The findings remain robust to an IV estimation strategy that exploits random assignment of respondents to waves of surveying.
Keywords: Social Development & Poverty, Conflict and Fragile States
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