Do natural disasters cause an excessive fear of heights? Evidence from the Wenchuan earthquake

Abstract

This paper uses the 2008 Wenchuan earthquake in China to examine if the occurrence of a natural disaster can cause an excessive fear of living in upper floors. We rely on potential variations in earthquake risk perceptions by floor level to assess whether the pricing of apartments in lower versus upper floors is consistent with a disproportionate fear of heights. We use a unique transaction dataset for new apartment units in the affected area. We find that the relative price of low to high floor units, particularly units located in the first and second floor, considerably increased for several months after the earthquake and then returned back to the levels observed prior to the tremor. This temporal increase in relative prices is in line with a higher risk perception and fear, triggered after the earthquake, of living in upper floors, which gradually dissipated over time. The results are robust to alternative model estimations.