Beine, Charness, Dupuy, and Joxhe (2020) on Earthquakes and Preferences

Michel Beine, Gary Charness, Arnaud Dupuy, and Majlinda Joxhe, “Shaking Things Up: On the Stability of Risk and Time Preferences.” IZA Discussion Paper No. 13084, March 2020. 

• It seems as if most economists believe that an individual’s risk and time preferences are pretty stable. 

• Patient people and the risk averse would seem to be less likely to migrate, and some empirical evidence supports this view. 

• Albanian per-capita GDP of just over $4000 per year is 30% of the EU average, despite recent high growth in Albania 

• The researchers converge on Tirana, where the currency is the Albanian lek, worth a bit less than one cent. Participants on average get about 12 dollars for a 20-minute or so interview, more than a day’s pay. 

• The 9 enumerators conducting the interactions speak Albanian. Geolocation data for the interviews is automatically collected, with n≈1500. 

• The first choice, aimed at gauging risk preferences: you have 100 coins, each worth 10 lek. You can put some of them in a bag. With probability .5, you will get triple what you put in; with probability .5, you will get nothing. How many coins will you put in the bag? (You keep the coins that you choose not to put in the bag). 

• For time preferences, the question concerns whether you would rather have 1000 lek today or some larger amount of money one month from today. The goal is to see how much more people will have to be paid to induce them to wait one month for their money. 

• The study started on August 31, 2019, and lasted through the end of the year. But on September 21 and November 26, 2019, two major earthquakes hit Tirana. 

• The control group in this (re-imagined post-quake) study is those people whose preferences were tested prior to the first earthquake. The two treatment groups are (1) those who experienced one earthquake, and (2) those who experienced two earthquakes, prior to their testing. 

• “the first earthquake reduces the amount invested in a risky asset (versus a safe asset) by about 25%, while the second one leads to an additional similar effect [p. 3].” Why the big change after the second one, when earthquakes have lost the element of surprise? And why should any changes in risk aversion be reflected in incentivized laboratory games with fixed probabilities? 

• Migration intentions share no connections with risk preferences among the study population, until after the second quake. (But pre-earthquake, already 70% of Albanians intend to migrate.) More exposure to the quakes makes more risk averse people more likely to migrate. More patience also means a lower intention to emigrate. 

• Before the first earthquake, about 42 coins are invested on average in the risk preferences situation: 144 people invest zero, 102 invest all 100 coins. (Aren’t there anti-gambling laws in Albania?) The number of coins risked falls from 42 to 34 to 23 with the earthquakes. 

• Would you take 2590 lek one month from now instead of 1000 lek today? Almost half of the participants would take the immediate 1000 lek. Patience (limited as it is) is cut in half with the first quake, and almost halved again with second. 

• Being exposed to heavier shaking (the geo data proxy for exposure) seems to be connected with a bigger change in risk and time preferences. 

• The earthquakes affect migration intentions indirectly, through their influence on risk and time preferences: the earthquakes mean that the now more risk averse people become willing to emigrate. More impatient people also are more interested in emigration.