The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment

Abstract

Abstract We estimate the impact of Kenya's postelection crisis on individual risk preferences. The crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, creating plausibly exogenous variation in exposure to civil conflict prior to the survey. Our results indicate that the postelection crisis sharply increased individual risk aversion. Immediately after the crisis, the fraction of subjects displaying extreme risk aversion increased by more than 80%. Findings remain robust when we use an IV estimation strategy that exploits random assignment of respondents to waves of surveying. The crisis also affected trust, social capital, and beliefs about the economy.