EXPRESS: A behavioral microeconomics model of tourist destination choice under loss aversion

This paper offers a theoretical and empirical characterization of destination choice under risk perceptions with loss averse individuals. We develop a novel theoretical model that extends the traditional microeconomic theory of destination choice by incorporating reference-dependent preferences, particularly loss aversion. Within a random utility formulation, our model predicts that subjective threat perceptions diminish the likelihood of choosing destinations prone to terrorism, triggering spatial substitution effects across regions. To empirically validate our model, we leverage the occurrence of the Jihadist terrorist attacks in Barcelona in August 2017 as a natural experiment to estimate the elasticities of substitution between Spanish destinations. Using monthly microdata on domestic tourist destination choices between August 2016 and December 2018 by 69,440 individuals, we find that the probability of travelling to Catalonia decreased by 0.575 percentage points following the attack, which led to significant market reallocation effects towards the regions of Valencia and Andalusia.