American Economic Review Vol. 101 No. 2 2011

Are Risk Preferences Stable across Contexts? Evidence from Insurance Data

Levon Barseghyan¹; Jeffrey Prince²; Joshua C. Teitelbaum³

¹ Department of Economics, Cornell University, 456 Uris Hall, Ithaca, NY 14853. · ² Department of Business Economics and Public Policy, Kelley School of Business, Indiana University, BU460, Bloomington, IN 47405. · ³ Georgetown University Law Center, 600 New Jersey Avenue NW, Washington, DC 20001.

Abstract

Using a unique dataset, 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. Our results are robust to several alternative modeling assumptions.

DOI

10.1257/aer.101.2.591

Volume

101

Issue

2

Pages

591-631

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓