Public perception of flood hazards in the housing market: A revealed preference study of affect heuristics and availability heuristics

Abstract

Are people neglecting natural hazards’ risk? The two main mental accounts of how laypeople judge natural hazard risks are the availability heuristic and the affect heuristic. However, these two mental accounts have rarely been compared alongside each other. Using flood hazards, this study argues that the affect heuristic and the availability heuristic should be considered together in assessing the public perception of the risks of natural hazards. Based on preferences revealed by property transactions in the Auckland Region in New Zealand, difference-in-differences hedonic models show that the positive affect heuristic associated with coastal amenities is dominant and moderating the negative affect heuristic from flood risks. Availability-by-recall, a heuristic that exploits people direct experience of risk, conformed to public responses at best after severe flood events. The impact of the availability heuristic of severe flooding events on property prices is similarly negative in the first six months and then declining over time after controlling for coastal amenities. This study concludes with a discussion of its policy implications, including how to calibrate public perception of the risk of natural hazards due to global warming and to raise their awareness of taking action against climate change.