Risk Perceptions as a Multivariate System: Crowding Out, Affect Generalization, and Heterogeneous Belief Updating

Abstract

Crises rarely arrive alone: pandemics overlap with wars, financial shocks with climate risks, personal hardship with collective upheaval. When one risk becomes salient, does worry about the others recede or spread? We provide a multi-domain, multi-shock field test using the German Socio-Economic Panel (SOEP), which elicits worries across eight domains from 1999 to 2022, and exploit quasi-random survey timing around major societal crises and within-person variation around idiosyncratic personal life events. Risk perceptions are not separable: a shock in one domain moves worries in others, even when the underlying risks are unrelated. The direction depends on the shock's proximity to the individual. Distant societal crises crowd out competing worries (Finite Pool of Worry); proximal personal events amplify worry across domains (Affect Generalization). Combining imputation-based difference-in-differences with latent profile analysis, we find the population splits into qualitatively distinct types: 27% generalize worry, 62% reallocate it, 11% suppress it. Profile membership is organized above all by neuroticism, revealing that personality shapes not only the level of worry, but the structure of belief updating itself. Interdependent worries imply that crises generate externalities in the mental economy of risk perception: displacing concern from persistent risks for some individuals, diffusing pessimism for others.