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

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  • Liran Einav
  • Amy Finkelstein
  • Iuliana Pascu
  • Mark R. Cullen
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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)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.6.2606
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 102 (2012)
    Issue (Month): 6 (October)
    Pages: 2606-38

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    Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2606-38

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    Cited by:
    1. Lukas Inderbitzin & Stefan Staubli & Josef Zweimüller, 2013. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," Economics working papers 2013-06, Department of Economics, Johannes Kepler University Linz, Austria.
    2. Deck, Cary & Lee, Jungmin & Reyes, Javier A. & Rosen, Christopher C., 2013. "A failed attempt to explain within subject variation in risk taking behavior using domain specific risk attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 1-24.
    3. Halko, Marja Liisa & Kaustia, Markku, 2012. "Are risk preferences dynamic? Within-subject variation in risk-taking as a function of background music," CFS Working Paper Series 2012/09, Center for Financial Studies (CFS).
    4. Vieider, Ferdinand M. & Lefebvre, Mathieu & Bouchouicha, Ranoua & Chmura, Thorsten & Hakimov, Rustamdjan & Krawczyk, Michal & Martinsson, Peter, 2013. "Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-402, Social Science Research Center Berlin (WZB).

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