Natural Disasters and Time Preference Indicators

Major natural disasters are often life-changing events, capable of potentially altering the preferences and economic behavior of those who experience it first-hand. We investigate the effects of major earthquakes on individuals’ personal consumption and investment patterns. We hypothesize that experiencing a major earthquake tends to alter individuals’ time preference in the direction of a higher personal discount rate. Using earthquakes which have occurred in China, we implement a regression discontinuity approach and find that on average, individuals who experienced a major earthquake tend to spend less on long term investments such as bonds and child-rearing, and spend more on entertainment, travel, and ‘luxury’ oriented products. The results suggest that naturally occurring environmental factors may be influential in accounting for individual and regional differences in preference parameters.