Risk Preferences and the Decision to Flee Conflict

Lidia Ceriani and Paolo Verme

February 2018



This paper explores why most people affected by conflict do not migrate. The authors model the distributions of outcomes (in terms of expenditure per capita) for people affected by conflict who decide to stay or leave. The distribution for ‘stayers’ is observable and derived directly from the data while the distribution for ‘leavers’ is estimated. The authors eschew a traditional ‘expected utility maximization’ model, which assumes that individuals make decisions based on the mean expected outcome (with a preference for distributions with a smaller spread of outcomes when expected utility is equal). Instead, the authors predict migration choices using ‘quantile maximization’, i.e. people with different risk preferences focus on different parts of the distribution of outcomes. The authors hypothesize that, at the extremes, risk-averse individuals aim to minimize losses (i.e. downside risks) by choosing the lottery with the best outcome at the lower end of the distribution (i.e. worst case scenario), while risk-tolerant individuals aim to maximize gains (i.e. upside potential) by choosing the lottery with the best outcome at the higher end of the distribution (i.e. best case scenario). Using household and conflict panel data from Nigeria for the period 2010-2016, the authors find that risk-tolerant individuals have a significant preference for staying and risk-averse individuals have a significant preference for fleeing. The authors note that this is contrary to findings on economic migrants (who are less risk-averse and migrate with the expectation of reaping large rewards and better living conditions) and call for separate policies towards economic and forced migrants in both places of origin and destination.