How people respond to rare events

Description

A central question in economics is how people respond to risk – specifically, how they respond to low-probability events. This column uses the COVID-19 pandemic as a natural experiment to answer this question. Studying the consumption behaviour of Portuguese public sector workers, whose income was likely unaffected by the crisis, they find that older workers reduced their consumption of high-contact goods by much more than younger workers.  As the likelihood for dying from COVID-19 is increasing in age, these results suggest that workers’ responses are commensurate with the risk they face.