Wildfires in Poland: The impact of risk preferences and loss aversion on environmental choices

- We explore loss aversion in environmental and financial domains.
- We examine transferability of risk preferences over finance to the environmental domain.
- We apply multiple-price list auctions to measure individual risk aversion and loss aversion parameters.
- We confirm that environmental choices are consistent with Cumulative Prospect Theory.

This paper examines how risk preferences and loss aversion affect individual choices regarding environmental risks, specifically forest wildfires in Poland. We also examine how the same individuals make choices in the context of financial risks. Estimating risk, loss aversion and weighting probability parameters allows us to directly test whether Prospect Theory or Expected Utility Theory is the better underlying behavioural model in both domains. We find that in a sample consisting of a general population of Poles, the majority of respondents demonstrate behaviour consistent with Prospect Theory in both environmental and financial domains. This finding has significant implications for future non-market valuation studies. Additionally, in this study, we find evidence for similar risk preferences across those two domains.