"How do People Respond to Small Probability Events with Large, Negative Consequences?"

Category: Macro Seminar
When: 13 April 2021
, 14:15
 - 15:30
Where: online
Speaker: Prof. Mathias Trabandt (Goethe University)


We study how people react to small probability events with large negative conse-

quences using the outbreak of the COVID-19 epidemic as a natural experiment. Our

analysis is based on a unique administrative data set with anonymized monthly expen-

ditures at the individual level. We find that older consumers reduced their spending by

more than younger consumers in a way that mirrors the age dependency in COVID-19

case-fatality rates. This differential expenditure reduction is much more prominent for

high-contact goods than for low-contact goods and more pronounced in periods with

high COVID-19 cases. Our results are consistent with the hypothesis that people react

to the risk of contracting COVID-19 in a way that is consistent with a canonical model

of risk taking.


Here is a link to a preliminary draft: 


EGMLRT_consumption.pdf - Google Drive