A Microeconometric Analysis of Risk Aversion and the Decision to Self-Insure
This study estimates a von Neumann-Morgenstern utility function using market data and microeconometric methods. The authors investigate the decision whether to purchase insurance against the risk of telephone line trouble in the home. Using the choices of approximately 10,000 residential customers, they determine the shape of the utility function and the degree of risk aversion. The authors find that risk aversion varies systematically in the population and varies with the level of income, and that the observed choice behavior is consistent with expected utility maximization. Copyright 1994 by University of Chicago Press.
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