Combining Risk Attitudes in a Lottery Game and Flood Risk Protection Decisions in a Discrete Choice Experiment
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Decision-making about flood protection is surrounded by outcome uncertainty. In this paper we look at the influence of individual risk attitudes on flood protection decisions. To this end, we combine the results of a lottery game with the findings from a discrete choice experiment focusing on flood risk reduction measures. We find that the inclusion of non-linear probability weighting increases the explanatory power of the choice model. The result is however sensitive to behavioral assumptions about decisions under uncertainty, as well as whether the lottery was played in the loss or gain domain. Including risk attitudes in the probability weighted model decreases marginal willingness to pay for measures with a low to intermediate flood risk reduction capacity and increases marginal willingness to pay for measures with a very high flood risk reduction effect. This has important implications for the social acceptability of flood reduction measures under different baseline conditions.
KeywordsLottery game Choice experiment Flood risk Bayesian model averaging Risk attitudes
JEL ClassificationC11 C57 D81 Q54
We thank Mehmet Kutluay for his valuable advice on the lottery game and the modeling approaches used in this study and Rosi Siber for helping us to link respondents’ addresses to current flood risk areas in Switzerland. This study is funded by the Swiss National Science Foundation (Grant No. 100018_156709).
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