Are Risk Preferences Stable Across Contexts? Evidence from Insurance Data

41 Pages Posted: 12 Aug 2008 Last revised: 13 May 2014

Levon Barseghyan

Cornell University

Jeffrey Prince

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Joshua C. Teitelbaum

Georgetown University Law Center

Date Written: April 1, 2011

Abstract

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.

Keywords: deductible choices, risk preferences, insurance, stability

JEL Classification: D11, D83

Suggested Citation

Barseghyan, Levon and Prince, Jeffrey and Teitelbaum, Joshua C., Are Risk Preferences Stable Across Contexts? Evidence from Insurance Data (April 1, 2011). American Economic Review, Vol. 101, No. 2, pp. 591-631, 2011. Available at SSRN: https://ssrn.com/abstract=1220663

Levon Barseghyan (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Jeffrey Prince

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

Joshua C. Teitelbaum

Georgetown University Law Center ( email )

600 New Jersey Avenue NW
Washington, DC 20001
United States
202-661-6589 (Phone)

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