Determinants of Consumer Financial Risktaking: Evidence from Deductible Choice

24 Pages Posted: 31 Oct 2011

See all articles by Janko Gorter

Janko Gorter

Dutch Central Bank

Paul Schilp

affiliation not provided to SSRN

Date Written: December 1, 2009

Abstract

We analyze a clear-cut example of choice under uncertainty, namely deductible choice in the Dutch health insurance market. The unique institutional features of this market enable us to examine demand-side choices that only vary in their financial parameters. Using a rich dataset, we investigate the theoretical determinants of deductible choice. In line with expected-utility theory, we find that healthier, wealthier and more risk-tolerant consumers choose higher levels of deductibility. Consumer choice for financial risk is thus driven by various considerations, not only by risk type. Heterogeneity in risk preferences seems at least as important in explaining financial risk-taking. These results are not only relevant to insurance markets but to all markets where consumers decide on financial risk.

Keywords: Financial Risk, Risk Tolerance, Adverse Selection, Deductible, Insurance

JEL Classification: D12, D81, G22

Suggested Citation

Gorter, Janko and Schilp, Paul, Determinants of Consumer Financial Risktaking: Evidence from Deductible Choice (December 1, 2009). De Nederlandsche Bank Working Paper No. 238, Available at SSRN: https://ssrn.com/abstract=1947233 or http://dx.doi.org/10.2139/ssrn.1947233

Janko Gorter (Contact Author)

Dutch Central Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

Paul Schilp

affiliation not provided to SSRN ( email )

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