In this paper we focus on the effect of two significant events on risk preferences in Sri Lanka – the 2004 Indian Ocean Tsunami and the civil war fought between the Liberation Tigers of Tamil Eelam (the Tamil Tigers) and the Sri Lankan Government between 1983-2009. Both events had widespread devastating effects, characterised by significant loss of life, property damage and displacement. In contrast to other studies concerning natural disaster, war and risk preferences, we have access to a large dataset of twins. This allows us to exploit variation within twin pairs in the exposure to these events in order to obtain more plausibly causal estimates than most previous studies. Our data also contain an unusually rich set of information on mental health, allowing us to explore this as a potential mechanism for changes in risk preferences. Our results suggest that both exposure to the tsunami and participation in the civil war leads to lower risk aversion. This result is robust across a variety of specification checks. We do not find evidence that either the tsunami or war had any effect on mental health for our sample, which suggests this is not the mechanism for our findings.
Nathan Kettlewell received his PhD from the University of New South Wales in 2017. His main research interests are public policy, health economics and behavioural economics. He is currently a Life Course Research Fellow of the ARC Centre of Excellence for Children and Families over the Life Course.