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Risk preferences over small stakes: Evidence from deductible choice

  • Janko Gorter
  • Paul Schilp

This paper provides new field evidence on risk preferences over small stakes. Using unique population and survey data on deductible choice in Dutch universal health insurance, we find that risk preferences are a dominant factor in decision aking. In fact, our results indicate that risk preferences are both statistically and quantitatively more significant in explaining deductible choice behavior than risk type. This finding contrasts with classical expected utility theory, as it implies risk neutrality over small stakes. More recently developed reference-dependent utility models, however, can rationalize risk aversion over small stakes, on account of loss aversion and narrow framing.

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File URL: http://www.dnb.nl/en/binaries/working%20Paper%20338_tcm47-268856.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 338.

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Date of creation: Feb 2012
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Handle: RePEc:dnb:dnbwpp:338
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Web page: http://www.dnb.nl/en/

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