Feeling is Believing? Evidence from Earthquake Shaking Experience and Insurance Demand

Abstract

This paper investigates how a particular type of personal experience -- “no-loss” experience with minor earthquakes -- affects financial decisions such as insurance purchases. We find a small temporary increase in insurance demand in areas that experience a shaking with moderate intensity, or multiple shakings with light intensity. An analysis of Google Trends data confirms an immediate increase in interest in insurance though not in seismic retrofit. These findings extend the applicability of the availability bias and hot-hand fallacy to a broader context: financial decisions may be motivated by not only loss experience, but recent no-loss experience, as people may extrapolate their “feeling” to something worse. However, such experience does not motivate long-term behavioral change.