Abstract
ABSTRACT We estimate whether risk preferences are affected by traumatic events by using a unique survey of Sri Lankan twins which contains information on individual’s exposure to the 2004 Indian Ocean Tsunami, validated measures of mental health and risk preferences, and a rich set of control variables. Our estimation strategy utilizes variation in experiences within twin pairs and allows us to explore wealth shocks and/or changes in mental health as mechanisms. We find that exposure to the tsunami lead to less risk aversion, a result that is not explained by mental health.
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