Context Comes to Mind: Evidence and Implications for Protection against Catastrophes

We study how the urban context of a disaster affects protection decisions against catastrophes using the 1995 Kobe earthquake, which is highly relevant to urban life but difficult to link with rural life. We use a Bayesian approach to identify regions with major cities where the sensitivities of earthquake insurance take-up determinants shifted after the earthquake. We found that relevance to the urban context creates significant heterogeneity in post-quake protection decisions. Furthermore, the post-quake substitution between earthquake insurance and life insurance suggests that information content strongly influences perceived risk and protection decisions.

Keywords: catastrophe, earthquake, context, heuristic, insurance

JEL Classification: D12, D81, D83, G2

Suggested Citation: Suggested Citation

Kakamu, Kazuhiko and Kamiya, Shinichi and Staufer-Steinnocher, Petra and Yamasaki, Takashi and Yanase, Noriyoshi, Context Comes to Mind: Evidence and Implications for Protection against Catastrophes (March 5, 2022). Nanyang Business School Research Paper No. 22-12, Available at SSRN: https://ssrn.com/abstract=4050176 or http://dx.doi.org/10.2139/ssrn.4050176