Risk Preference Heterogeneity And Multiple Demand For Insurance
AbstractWe examined the relationship between unobserved risk preferences and four insurance purchase decisions: health Medigap insurance, long-term insurance, life insurance and annuity. Standard economic theory assumes that individuals take decision over a set of risky domains according to their own risk preferences which are stable across decision contexts. This assumption of context-invariant risk preference has caused debate in the literature concerning its validity. Using data from the Health and Retirement Study, we exploit latent class analysis to identify conditional on predicted and realized risk how heterogeneity in risk preferences affects multiple insurance demand. Our results provide evidence of the existence of domain general component of risk preferences, although non-preference factors - such as context specificity - play also an important role. JEL Classi_cation Numbers G11, Keywords
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Bibliographic InfoPaper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 10/17.
Date of creation: Jul 2010
Date of revision:
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More information through EDIRC
Risk Preferences; Multiple Demand for Insurance; Finite Mixture Model; Long-Term Care Insurance; Medigap; Annuity; Life Insurance;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-11 (All new papers)
- NEP-IAS-2010-09-11 (Insurance Economics)
- NEP-UPT-2010-09-11 (Utility Models & Prospect Theory)
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