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Are Risk Preferences Stable across Contexts? Evidence from Insurance Data

Author

Listed:
  • Levon Barseghyan
  • Jeffrey Prince
  • Joshua C. Teitelbaum

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. (JEL D11, D83)

Suggested Citation

  • Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:2:p:591-631
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    References listed on IDEAS

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    1. Jaap Abbring & Pierre-André Chiappori & Tibor Zavadil, 2008. "Better Safe than Sorry? Ex Ante and Ex Post Moral Hazard in Dynamic Insurance Data," Tinbergen Institute Discussion Papers 08-075/3, Tinbergen Institute.
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    3. Jaap H. Abbring & Pierre-André Chiappori & Jean Pinquet, 2003. "Moral Hazard and Dynamic Insurance Data," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 767-820, June.
    4. Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
    5. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 537-579.
    6. A. Colin Cameron & Pravin K. Trivedi, 1986. "Econometric models based on count data. Comparisons and applications of some estimators and tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 29-53, January.
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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