The salience of disaster: how experience outweighs information in pricing earthquake risk

Abstract

This paper investigates how salience influences decision-making in earthquake-prone real estate markets in Türkiye, focusing on two critical events: the 2018 revision to the national earthquake hazard map and the catastrophic 2023 earthquake that resulted in over 50,000 fatalities. Our findings indicate that while the updates to the hazard map have little effect on property values, the actual occurrence of a disaster significantly reduces home prices and increases insurance uptake in high-risk but physically unaffected areas. A one-standard-deviation increase in baseline seismic risk is associated with a 4% decline in home prices after the earthquake. Additionally, the data show that areas with strong social connections to disaster-stricken regions experience more pronounced declines in home sale prices, highlighting the role of personal relationships in amplifying risk perception. Overall, these results suggest that the salience of a vivid event is far more impactful in shaping economic behaviors than abstract, probabilistic information in high-risk scenarios.