The Heterogeneous Impacts of Natural Disasters on Risk Preferences in Indonesia

Many economic decisions are influenced by individual risk preferences, and new evidence challenges the immutability of these preferences. This paper explores the impact of disasters on individual risk attitudes using longitudinal data from Indonesia, focusing on the heterogeneity of disasters by type, severity and timing. I find risk aversion increases for a decade following disasters, and high-mortality disasters, namely earthquakes, are more salient to individuals than higher frequency, lower-mortality disasters. These outcomes shed light on how survivors in a developing country respond to and internalize disaster shocks and are informative to policymakers in addressing the increasing threat of disasters.