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How do People Respond to Small Probability Events with Large, Negative Consequences? (com Martin Eichenbaum, Miguel Godinho de Matos, Francisco Lima e Mathias Trabandt)

Orador convidado

Sérgio Rebelo (Kellogg School of Management - Northwestern University)

Local

Online

Data

Início16.03.2022 16:00Fim16.03.2022 17:00

Resumo do evento

Abstract:
We study how people react to small probability events with large negative consequences using the outbreak of the COVID-19 epidemic as a natural experiment. Our analysis is based on a unique administrative data set with anonymized monthly expenditures at the individual level. We find that older consumers reduced their spending by more than younger consumers in a way that mirrors the age dependency in COVID-19 case-fatality rates. This differential expenditure reduction is much more prominent for high-contact goods than for low-contact goods and more pronounced in periods with high COVID-19 cases. Our results are consistent with the hypothesis that people react to the risk of contracting COVID-19 in a way that is consistent with a canonical model of risk taking.