Global Evidence of the Impacts of Natural Disasters on Economic Preferences

Extreme weather events are increasing in frequency and severity, directly affecting economic growth and development, especially in low-income countries. Disasters may also have indirect effects through their impacts on economic preferences, including risk, time, and social preferences, which shape individual investment decisions and economic relationships. Using experimentally validated measures of six economic preferences in 64 countries, we find that recent exposure to natural disasters makes individuals on average more risk averse, less patient and less prosocial. The effects are strongest among individuals who are less resilient to shocks because they (a) live in countries with limited resources and inadequate social and institutional safety nets; or b) are in cultural contexts with “looser” social norms and lower social cohesion; or (c) are exposed to shocks against which it is hard to prepare. We also find that short- term exposure to natural disasters may hamper interpersonal relationships by decreasing negative reciprocity and social trust, but that higher lifetime exposure may actually increase trust and positive reciprocity over the long-term. Our results point to the importance of climate adaptation and mitigation policies and robust and rapid post-disaster relief measures that reduce the negative impacts of natural disasters, mitigating their indirect as well as direct impacts on economic growth and human development.