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Risk preferences over small stakes: Evidence from deductible choice

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  • Janko Gorter
  • Paul Schilp

Abstract

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.

Suggested Citation

  • Janko Gorter & Paul Schilp, 2012. "Risk preferences over small stakes: Evidence from deductible choice," DNB Working Papers 338, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:338
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    File URL: https://www.dnb.nl/en/binaries/working%20Paper%20338_tcm47-268856.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rik Dillingh & Peter Kooreman & Jan Potters, 2016. "Probability Numeracy and Health Insurance Purchase," De Economist, Springer, pages 19-39.
    2. Dillingh, Rik, 2016. "Empirical essays on behavioral economics and lifecycle decisions," Other publications TiSEM 0e2143e3-bd86-4302-90eb-e, Tilburg University, School of Economics and Management.
    3. Rik Dillingh & Peter Kooreman & Jan Potters, 2016. "Probability Numeracy and Health Insurance Purchase," De Economist, Springer, pages 19-39.

    More about this item

    Keywords

    consumer preferences; insurance; deductible; decision making; loss aversion;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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