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Estimating Prudence

Author

Listed:
  • Joseph G. Eisenhauer

    (Department of Economics and Finance, Canisius College)

Abstract

This study uses an expected utility model of life insurance demand to derive reduced form equations for the Leland-Kimball measures of absolute and relative prudence. The model is estimated for various demographic subgroups using survey data form the University of Michigan's Health and Retirement Study. The estimates of relative prudence range from 1.51 to 5.15, with males at the lower end and females at the higher end of the range. Additionally, prudence is higher among older and married cohorts than among younger and unmarried cohorts, respectively; and smokers, drinkers, and risk-takers appear to be less prudent than their respective counterparts.

Suggested Citation

  • Joseph G. Eisenhauer, 2000. "Estimating Prudence," Eastern Economic Journal, Eastern Economic Association, vol. 26(4), pages 379-392, Fall.
    • Handle: RePEc:eej:eeconj:v:26:y:2000:i:4:p:379-392
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume26/V26N4P379_392.pdf
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    Citations

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    Cited by:

    1. Charles N. Noussair & Stefan T. Trautmann & Gijs van de Kuilen, 2014. "Higher Order Risk Attitudes, Demographics, and Financial Decisions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 325-355.
    2. Kangoh Lee, 2012. "Uncertain indemnity and the demand for insurance," Theory and Decision, Springer, vol. 73(2), pages 249-265, August.
    3. repec:ebl:ecbull:v:4:y:2003:i:38:p:1-10 is not listed on IDEAS
    4. repec:ebl:ecbull:v:4:y:2007:i:23:p:1-11 is not listed on IDEAS
    5. Daria Pignalosa, 2021. "The Euler Equation Approach: Critical Implications of Recent Developments in the Theory of Intertemporal Choice," Bulletin of Political Economy, Bulletin of Political Economy, vol. 15(1), pages 1-43, June.
    6. Anderberg, Dan & Andersson, Fredrik, 2003. "Investments in human capital, wage uncertainty, and public policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1521-1537, August.
    7. AJ A. Bostian & Christoph Heinzel, 2016. "Consumption Smoothing and Precautionary Saving under Recursive Preferences," FOODSECURE Working papers 44, LEI Wageningen UR.
    8. Joseph Eisenhauer & Luigi Ventura, 2003. "Survey measures of risk aversion and prudence," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1477-1484.
    9. J. François Outreville, 2015. "The Relationship Between Relative Risk Aversion And The Level Of Education: A Survey And Implications For The Demand For Life Insurance," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 97-111, February.
    10. J. Francois Outreville, 2014. "Risk Aversion, Risk Behavior, and Demand for Insurance: A Survey," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 37(2), pages 158-186.

    More about this item

    Keywords

    Insurance;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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