Climatic Roots of Loss Aversion

70 Pages Posted: 7 May 2018

See all articles by Oded Galor

Oded Galor

Brown University - Department of Economics; Centre for Economic Policy Research (CEPR)

Viacheslav Savitskiy

Brown University - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: March 05, 2018

Abstract

This research explores the origins of loss aversion and the variation in its prevalence across regions, nations and ethnic group. It advances the hypothesis and establishes empirically that the evolution of loss aversion in the course of human history can be traced to the adaptation of individuals to the asymmetric effects of climatic shocks on reproductive success during the Malthusian epoch. Exploiting variations in the degree of loss aversion among second generation migrants in Europe and the US, as well as across precolonial ethnic groups, the research establishes that consistent with the predictions of the theory, individuals and ethnic groups that are originated in regions in which climatic conditions tended to be spatially correlated, and thus shocks were aggregate in nature, are characterized by greater intensity of loss aversion, while descendants of regions marked by climatic volatility have greater propensity towards loss-neutrality.

Keywords: loss aversion, cultural evolution, evolution of preferences, natural selection, Malthusian epoch, growth, development

JEL Classification: D810, D910, Z100, O100, O400

Suggested Citation

Galor, Oded and Savitskiy, Viacheslav, Climatic Roots of Loss Aversion (March 05, 2018). CESifo Working Paper Series No. 6917. Available at SSRN: https://ssrn.com/abstract=3167724

Oded Galor (Contact Author)

Brown University - Department of Economics ( email )

Providence, RI 02912
United States

HOME PAGE: http://www.econ.brown.edu/fac/Oded_Galor/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.econ.brown.edu/fac/Oded_Galor/

Viacheslav Savitskiy

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

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