This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window

American Economic Review: Vol. 103 No. 6 (October 2013)

Expand

Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter

Explore:

AER - All Issues

AER Forthcoming Articles

The Nature of Risk Preferences: Evidence from Insurance Choices

Article Citation

Barseghyan, Levon, Francesca Molinari, Ted O'Donoghue, and Joshua C. Teitelbaum. 2013. "The Nature of Risk Preferences: Evidence from Insurance Choices." American Economic Review, 103(6): 2499-2529.

DOI: 10.1257/aer.103.6.2499

Abstract

We use data on insurance deductible choices to estimate a structural model of risky choice that incorporates "standard" risk aversion (diminishing marginal utility for wealth) and probability distortions. We find that probability distortions—characterized by substantial overweighting of small probabilities and only mild insensitivity to probability changes—play an important role in explaining the aversion to risk manifested in deductible choices. This finding is robust to allowing for observed and unobserved heterogeneity in preferences. We demonstrate that neither Köszegi-Rabin loss aversion alone nor Gul disappointment aversion alone can explain our estimated probability distortions, signifying a key role for probability weighting.

Article Full-Text Access

Full-text Article

Additional Materials

Download Data Set (2.80 MB) | Online Appendix (788.36 KB) | Author Disclosure Statement(s) (495.36 KB)

Authors

Barseghyan, Levon (Cornell U)
Molinari, Francesca (Cornell U)
O'Donoghue, Ted (Cornell U)
Teitelbaum, Joshua C. (Law Center, Georgetown U)

JEL Classifications

D14: Household Saving; Personal Finance
D81: Criteria for Decision-Making under Risk and Uncertainty
G22: Insurance; Insurance Companies; Actuarial Studies


American Economic Review


Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)

Explore:

AER - All Issues

AER - Forthcoming Articles

Virtual Field Journals


AEA Member Login:


AEAweb | AEA Journals | Contact Us