Risk perception in an endogenous information environment

Abstract

This study examines risk perception in an endogenous information setting, where information about an uncertain event can only be gathered if the uncertain event is chosen over all other alternatives. We conduct a laboratory experiment that employs a driving context, where participants are asked to make route choices over uncertain routes using a driving simulator. Based on the route choices participants make, their subjective belief of travel delay can be inferred and structured estimated. The results show that: 1) The average participants initially overestimates the risk of travel delay across high- and low-risk conditions. 2) In subsequent driving periods, only participants in the lowest risk condition express significant downward belief adjustment, resulting in their beliefs no longer being significantly different from the objective risk. This is consistent with the toll fee being the most elastic in the lowest risk condition, and the most inelastic in the higher risk conditions.