Time-Varying Risk Aversion: Evidence from Near-Miss Accidents

40 Pages Posted: 27 Sep 2019 Last revised: 15 Dec 2019

See all articles by Matthew Shum

Matthew Shum

California Institute of Technology

Yi Xin

California Institute of Technology

Date Written: October 29, 2019

Abstract

We present evidence consistent with time-varying risk preferences among automobile drivers. Exploiting a unique dataset of agents’ high-frequency driving behavior collected by a mobile phone application, we show that driving behavior changes after driving mishaps. Following “near-miss” accidents (measured by hard brakes or hard turns), drivers drive more conservatively, which is consistent with increased risk aversion following such mishaps. In a preferred specification, a near-miss triggers a reduction in driving distance of 8.12 kilometers, in-car cellphone use by 88.80%, and highway use by 34.88%. Calibration results indicate that such changes in behavior are consistent with an increase in risk aversion of 11.02–31.59% and a reduction in annual insurance cost amounting to 0.05–1.54% of the average car insurance premium.

Keywords: time-varying risk aversion, near-miss, automobile insurance, high-frequency driving data

JEL Classification: G22, D82, D91

Suggested Citation

Shum, Matthew and Xin, Yi, Time-Varying Risk Aversion: Evidence from Near-Miss Accidents (October 29, 2019). Available at SSRN: https://ssrn.com/abstract=3455798 or http://dx.doi.org/10.2139/ssrn.3455798

Matthew Shum (Contact Author)

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Yi Xin

California Institute of Technology ( email )

Pasadena, CA 91125
United States

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