The seminal work of Daniel Kahneman and Amos Tversky on Prospect theory discussed the ‘certainty effect’, in which ‘people underweight outcomes that are merely probable relative to outcomes that are achieved with certainty’; “This tendency, called the certainty effect, contributes to risk aversion in choices involving certain gains and to risk-seeking in choices involving certain losses.” Thus, in the absence of certainty, uncertainty , together with information asymmetry, shapes human behavior. Humans are inherently risk averse, so they try to reduce uncertainty because it triggers negative affective responses. Agents try to predict uncertainty based on past knowledge, contextual clues and available information. In the event of an unexpected shock, this becomes difficult and humans tend to become more risk averse. The inherent tendency is then to rely on proven institutions and networks. sudden reverse migration from urban to rural areas during the first phase of the covid pandemic reflects this phenomenon.
Portability of welfare access could help solve a conundrum of uncertainty0