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Cloé Garnache

University of Oslo

« Does the Salience of Risk Affect Large, Risky Asset Purchases? »

Abstract: We document that when a Southern California home gets designated to a wildfire risk zone, its price drops by about 11% relative to homes just outside the designation boundary. Whereas the risk designation is discontinuous, the underlying risk is con-tinuous — suggesting the price effect is due to greater risk salience rather than greater risk. Moreover, after a nearby fire prices of homes with a view of the burn scar are about 5% lower than those of otherwise similar homes for one year — an effect signifi-cant only for the first year post-fire and too large to be explained by visual disamenities alone.