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The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment

37 Pages Posted: 20 Apr 2016  

Pamela Jakiela

University of Maryland

Owen W. Ozier

World Bank - Development Economics Group (DEC); World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: October 14, 2015

Abstract

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

Suggested Citation

Jakiela, Pamela and Ozier, Owen W., The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment (October 14, 2015). World Bank Policy Research Working Paper No. 7440. Available at SSRN: https://ssrn.com/abstract=2674442

Pamela Jakiela (Contact Author)

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Owen W. Ozier

World Bank - Development Economics Group (DEC) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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