Are Risk Preferences Stable Across Contexts? Evidence from Insurance Data
Indiana University - Kelley School of Business - Department of Business Economics & Public Policy
Joshua C. Teitelbaum
Georgetown University Law Center
April 1, 2011
American Economic Review, Vol. 101, No. 2, pp. 591-631, 2011
Using a unique data set, we test whether households' deductible choices in auto and home insurance reflect stable risk preferences. Our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household-coverage specific Poisson processes. We find that the hypothesis of stable risk preferences is rejected by the data. Our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices. We find that our results are robust to several alternative modeling assumptions.
Number of Pages in PDF File: 41
Keywords: deductible choices, risk preferences, insurance, stability
JEL Classification: D11, D83
Date posted: August 12, 2008 ; Last revised: May 13, 2014
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