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  4. October 2012
  5. How General Are Risk Preferences? Choices under Uncertainty in Different Domains

How General Are Risk Preferences? Choices under Uncertainty in Different Domains

  • Liran Einav
  • Amy Finkelstein
  • Iuliana Pascu
  • Mark R. Cullen
American Economic Review
vol. 102, no. 6, October 2012
(pp. 2606-38)
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Abstract

We analyze the extent to which individuals' choices over five employer-provided insurance coverage decisions and one 401(k) investment decision exhibit systematic patterns, as would be implied by a general utility component of risk preferences. We provide evidence consistent with an important domain-general component that operates across all insurance choices. We find a considerably weaker relationship between one's insurance decisions and 401(k) asset allocation, although this relationship appears larger for more "financially sophisticated" individuals. Estimates from a stylized coverage choice model suggest that up to 30 percent of our sample makes choices that may be consistent across all 6 domains. (JEL D12, D14, D81, G22, J33)

Citation

Einav, Liran, Amy Finkelstein, Iuliana Pascu, and Mark R. Cullen. 2012. "How General Are Risk Preferences? Choices under Uncertainty in Different Domains." American Economic Review, 102 (6): 2606-38. DOI: 10.1257/aer.102.6.2606

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • D14 Personal Finance
  • D81 Criteria for Decision-Making under Risk and Uncertainty
  • G22 Insurance; Insurance Companies
  • J33 Compensation Packages; Payment Methods