Estimating Risk Preferences from Deductible Choice
Cohen, Alma, and
Liran Einav. 2007. "Estimating Risk Preferences from Deductible Choice."
American Economic Review,
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
Download Data Set
(15.21 KB) | Link to Appendix