The nature of risk preferences: Evidence from insurance choices

Arbeitspapier

We use data on households' deductible choices in auto and home insurance to estimate a structural model of risky choice that incorporates standard risk aversion (concave utility over final wealth), loss aversion, and nonlinear probability weighting. Our estimates indicate that nonlinear probability weighting plays the most important role in explaining the data. More specifically, we find that standard risk aversion is small, loss aversion is nonexistent, and nonlinear probability weighting is large. When we estimate restricted models, we find that nonlinear probability weighting alone can better explain the data than standard risk aversion alone, loss aversion alone, and standard risk aversion and loss aversion combined. Our main findings are robust to a variety of modeling assumptions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CAE Working Paper ; No. 11-03

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Behavior: Underlying Principles ; Consumer Economics: Empirical Analysis ; Criteria for Decision-Making under Risk and Uncertainty ; Insurance; Insurance Companies; Actuarial Studies
• Subject: deductible ; loss aversion ; probability weighting ; risk aversion ; Risikopräferenz ; Versicherung ; Selbstbeteiligung ; Konsumentenverhalten ; Schätzung ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Barseghyan, Levon ; Molinari, Francesca ; O'Donoghue, Ted ; Teitelbaum, Joshua
• Event: Veröffentlichung
• (who): Cornell University, Center for Analytical Economics (CAE)
• (where): Ithaca, NY
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/70469
• Last update: 10.03.2025, 11:41 AM CET