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Indiana University Bloomington

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1960 Notable

From 1960-2013, we prepared nearly 1,200 men and women
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Journal Articles

Are Risk Preferences Stable across Contexts? Evidence from Insurance Data

2011, American Economic Review

Levon Barseghyan, Jeff Prince, Joshua Teitelbaum

Abstract

Using a unique data set, 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. We find that our results are robust to several alternative modeling assumptions. 

Citation

Barseghyan, Levon, Jeff Prince, and Joshua Teitelbaum (2011), “Are Risk Preferences Stable across Contexts?  Evidence from Insurance Data,” American Economic Review, 101(2): 591–631.

Keywords

deductible choices, risk preferences, insurance, stability