Climatic Roots of Loss Aversion

91 Pages Posted: 19 Nov 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: November 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 humans to the asymmetric effects of climatic shocks on reproductive success during the epoch in which subsistence consumption was a binding constraint. Exploiting regional variations in the vulnerability to climatic shocks and their exogenous changes in the course of the Columbian Exchange, the research establishes that consistent with the predictions of the theory, individuals and ethnic groups that are originated in regions marked by greater climatic volatility have higher predisposition towards loss-neutrality, while descendants of 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.

JEL Classification: D81, D91, O10, O40, Z10

Suggested Citation

Galor, Oded and Savitskiy, Viacheslav, Climatic Roots of Loss Aversion (November 2018). CEPR Discussion Paper No. DP13313. Available at SSRN: https://ssrn.com/abstract=3287060

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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