How General are Risk Preferences? Choices Under Uncertainty in Different Domains

32 Pages Posted: 25 Jan 2010 Last revised: 4 Apr 2015

See all articles by Liran Einav

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Iuliana Pascu

affiliation not provided to SSRN

Mark Cullen

Yale University - School of Medicine

Date Written: January 2010

Abstract

We examine the extent to which an individual's actual insurance and investment choices display a stable ranking in willingness to bear risk, relative to his peers, across different contexts. We do so by examining the same individuals' decisions regarding their 401(k) asset allocations and their choices in five different employer-provided insurance domains, including health and disability insurance. We reject the null that there is no domain-general component of preferences. Among the five insurance domains, the magnitude of the domain-general component of preferences appears substantial; we find for example that one's choices in other insurance domains are substantially more predictive of one's choice in a given insurance domain than either one's detailed demographic characteristics or one's claims experience in that domain. However, we find considerably less predictive power between one's insurance choices and the riskiness of one's 401(k) asset allocations, suggesting that the common element of an individual's preferences may be stronger among domains that are "closer" in context. We also find that the relationship between insurance and investment choices appears considerably larger for employees who may be associated with better "financial sophistication." Overall, we view our findings as largely consistent with an important domain-general component of risk preferences.

Suggested Citation

Einav, Liran and Finkelstein, Amy and Pascu, Iuliana and Cullen, Mark, How General are Risk Preferences? Choices Under Uncertainty in Different Domains (January 2010). NBER Working Paper No. w15686. Available at SSRN: https://ssrn.com/abstract=1540990

Liran Einav (Contact Author)

Stanford University - Department of Economics ( email )

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Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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617-868-7242 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Iuliana Pascu

affiliation not provided to SSRN ( email )

No Address Available

Mark Cullen

Yale University - School of Medicine ( email )

333 Cedar Street
New Haven, CT 06520-8034
United States

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