Abstract
We test the canonical version of prospect theory using unique data from residents displaced by the Fukushima Daiichi Nuclear Disaster. To collect the data set, we designed and administered surveys to residents from Futaba (a town in Fukushima), who evacuated from the area because of high levels of radiation. As a result, all residents of Futaba lost their homes, land, and stable income sources. Using this incidence as a source of exogenous variations, our analysis reveals three significant empirical patterns. First, the displaced residents show unusually high levels of depression as captured by the Kessler 6 measure (K6), a widely-used measure of non-specific psychological distress. Second, we find that large losses of income, health, and home space are strongly associated with increased depression levels. Moreover, our empirical results show that psychological outcomes are more sensitive to losses than to gains, a finding which is largely consistent with the basic predictions of prospect theory.
