Inference under Stability of Risk Preferences

Levon Barseghyan

Cornell University

Francesca Molinari

Cornell University - Department of Economics

Joshua C. Teitelbaum

Georgetown University Law Center

June 15, 2015

Quantitative Economics, Forthcoming

We leverage the assumption that preferences are stable across contexts to partially identify and conduct inference on the parameters of a structural model of risky choice. Working with data on households' deductible choices across three lines of insurance coverage and a model that nests expected utility theory plus a range of non-expected utility models, we perform a revealed preference analysis that yields household-specific bounds on the model parameters. We then impose stability and other structural assumptions to tighten the bounds, and we explore what we can learn about households' risk preferences from the intervals defined by the bounds. We further utilize the intervals to (i) classify households into preference types and (ii) recover the single parameterization of the model that best fits the data. Our approach does not entail making distributional assumptions about unobserved heterogeneity in preferences.

Number of Pages in PDF File: 93

Keywords: inference, insurance, partial identification, revealed preference, risk preferences, stability

JEL Classification: D01, D12, D81, G22

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Date posted: June 8, 2014 ; Last revised: July 16, 2015

Suggested Citation

Barseghyan, Levon and Molinari, Francesca and Teitelbaum, Joshua C., Inference under Stability of Risk Preferences (June 15, 2015). Quantitative Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2446841 or http://dx.doi.org/10.2139/ssrn.2446841

Contact Information

Levon Barseghyan
Cornell University ( email )
Ithaca, NY 14853
United States
Francesca Molinari
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6367 (Phone)
607-255-2818 (Fax)
HOME PAGE: http://www.arts.cornell.edu/econ/fmolinari/
Joshua C. Teitelbaum (Contact Author)
Georgetown University Law Center ( email )
600 New Jersey Avenue NW
Washington, DC 20001
United States
202-661-6589 (Phone)
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