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American Economic Review: Vol. 97 No. 3 (June 2007)
AER Volume. 97, Issue 3 | 
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AER Forthcoming Articles
Estimating Risk Preferences from Deductible Choice
Article Citation
Cohen, Alma, and
Liran Einav. 2007. "Estimating Risk Preferences from Deductible Choice."
American Economic Review,
97(3): 745-788.
DOI: 10.1257/aer.97.3.745
DOI: 10.1257/aer.97.3.745
Abstract
We develop a structural econometric model to estimate risk preferences from data
on deductible choices in auto insurance contracts. We account for adverse selection
by modeling unobserved heterogeneity in both risk (claim rate) and risk aversion.
We find large and skewed heterogeneity in risk attitudes. In addition, women are
more risk averse than men, risk aversion exhibits a U-shape with respect to age, and
proxies for income and wealth are positively associated with absolute risk aversion.
Finally, unobserved heterogeneity in risk aversion is greater than that of risk, and,
as we illustrate, has important implications for insurance pricing. (JEL D81, G22)
Article Full-Text Access
Full-text Article
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Download Data Set (15.21 KB) | Link to Appendix (180.05 KB)
Authors
Cohen, Alma
Einav, Liran
Einav, Liran
