Risk perception, online search and consumption distortion

Abstract

Using earthquake as an example, I investigate how risk perception affects household consumption with China Urban Household Survey data and Baidu index dataset. The empirical results show that consumption expenditure per capita drops by 25.2 yuan as the local search index of “earthquake” keyword increases by one standard deviation unit. These findings generally support the precautionary savings hypothesis. I also find media coverage of earthquake-related information drives the rise of the search index and the fall of household consumption. The results suggest that disaster events can seriously distort household consumption behaviors^, and the economic costs of social panic can be even higher than the direct loss of disasters.