Many individuals experience problems understanding and preparing for low-probability/high-impact risk, like natural disasters and pandemics – unless they experience these events, yet then it is often too late to avoid damages. Individuals with recent disaster risk experience are, on average, better prepared. This seems to be mediated through emotions and a better understanding of the consequences. In this study, we use immersive virtual reality (VR) technology to examine whether a simulated disaster can stimulate people to invest in risk reducing measures in the context of flooding, which is one of the deadliest and most damaging natural disasters in the world. We investigate the possibility to boost risk perception, coping appraisal, negative emotions and damage-reducing behavior through a simulated flooding experience. We find that participants who experienced the virtual flood invest significantly more in the flood risk investment game than those in the control group. The investments in the VR treatment seem to decrease after four weeks but not significantly so.

[forthcoming in Judgment and Decision Making]

Flooding is one of the most dangerous natural hazards worldwide, causing widespread economic damage in coastal areas, thousands of deaths and injuries, and displacing millions of people every year. Individual homeowners can take a number of measures to reduce potential flood damage to their homes, but few people in flood-prone areas invest in these measures. This thesis examines several factors that could explain the lack of voluntary investment, including moral hazard, risk misperceptions and bounded rationality. Furthermore, this thesis investigates various incentives to stimulate investments in damage-reducing measures, such as insurance incentives, risk communication in virtual reality and social norm-nudges. This is achieved by experimental economics methods: lab experiments with students, online experiments in surveys with homeowners in flood-prone areas, as well as an economic experiment using a virtual reality experience.