A Microeconometric Analysis of Risk Aversion and the Decision to Self-Insure

Charles J. Cicchetti; Jeffrey A. Dubin

doi:10.1086/261925

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A Microeconometric Analysis of Risk Aversion and the Decision to Self-Insure

Charles J. Cicchetti^1,2; Jeffrey A. Dubin¹

¹ California Institute of Technology · ² Bartlett Public Library District

Journal of Political Economy 1994

This study estimates a von Neumann-Morgenstern utility function using market data and microeconometric methods. We investigate the decision whether to purchase insurance against the risk of telephone line trouble in the home. Using the choices of approximately 10,000 residential customers, we determine the shape of the utility function and the degree of risk aversion. We find that risk aversion varies systematically in the population and varies with the level of income and that the observed choice behavior is consistent with expected utility maximization.

DOI: 10.1086/261925
Volume: 102 (1)
Pages: 169-186
Language: en
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