Rare events and learning

How do disastrous events impact our behaviour? According to Pablo Winant, we tend to be over-optimistic before crises and over-pessimistic after them. “After a terrorist attack, for example, people (falsely) believe that attacks are more frequent that they thought and they adapt their reactions,” he says. “I want to prove that if the event is rare enough—an epidemic, a financial crash, an apparent acceleration of global warming—people ‘overshoot’ in response, more than proportionally revising expectations. As a result, even a benign crisis can be followed by more pessimistic behaviour.”
Using numerical techniques and bounded rationality, Winant is creating intertemporal general equilibrium models to anticipate the effects of financial, technological, sociological and climatic shocks as well as provide insights into the recovery process.
My research focuses on the aftermath of catastrophic events, when agents revise their priors about future risks. At a macroeconomic level, risk averse behaviour may translate into higher risk premia and investment distorsion, even if the main realization of the risk belongs to the past. We propose to study this learning behaviour in a standard macroeconomic settings (dynamic stochastic general equilibrium).