Eichenbaum, MartinMatos, Miguel Godinho deLima, FranciscoTrabandt, MathiasRebelo, Sergio2021-05-102021-05-102020-100898-2937http://hdl.handle.net/10400.14/32950We study how people react to small probability events with large negative consequences using the outbreak of the COVID-19 epidemic as a natural experiment. Our analysis is based on a unique administrative data set with anonymized monthly expenditures at the individual level. We find that older consumers reduced their spending by more than younger consumers in a way that mirrors the age dependency in COVID-19 case-fatality rates. This differential expenditure reduction is much more prominent for high-contact goods than for low-contact goods and more pronounced in periods with high COVID-19 cases. Our results are consistent with the hypothesis that people react to the risk of contracting COVID-19 in a way that is consistent with a canonical model of risk taking.engworking paper10.3386/w27988