Economic Decisions under Risks: the Role of Heterogeneity, Interactions and Evolving Risk Perceptions

As climate change exacerbates, adaptation to climate related disasters becomes vital. Given the growing costs of climate change, public adaptation policies increasingly align with private adaptation actions. Individual climate adaptation decisions – such as households’ choices leading to flood risk reduction and increasing resilience – are driven by both economic rationale and behavioral factors. Academic literature is rich in survey examples analyzing influence of both, and illustrating that experience matters and potentially leads to different adaptation choices. In this talk I will discuss how this comprehensive micro-level data could be used to explore households’ climate adaptation decisions in dynamics and understand cumulative consequences of individual choices. I will present an agent-based computational economics model enhanced with survey data on choices that households make when facing flood risks. Individual heterogeneity, interactions and evolving risk perceptions become central in assessing expected damages and urban resilience to climate-driven floods.

Tatiana Filatova is Professor of Economic Modeling for Resilient Societies at the University of Twente (the Netherlands) and Professor of Computational Economic Modeling at the University of Technology Sydney (Australia). Her research line focuses on exploring how behavioral changes at micro level may lead to critical transitions (tipping points/regime shifts) on macro level in complex adaptive human-environment systems in application to climate change economics. She uses agent-based modelling (ABM) combined with social science methods of behavioral data collection on individual decisions and social networks. In 2017, her research line was awarded with the ERC Starting Grant within the 'excellent science' pillar.