Neither Adverse nor Propitious Selection: An Inverse U-shaped Relationship between Risk Preference and Insurance Purchase

Risk preference is a critical determinant of commercial insurance adoption, yet existing empirical studies present conflicting evidence regarding the relationship between risk preference and insurance purchasing behavior. This study challenges conventional adversarial or favorable selection perspectives by demonstrating a nonlinear inverse U-shaped association between risk preference and insurance uptake. Using two distinct samples, we provide robust evidence for this non-monotonic pattern. First, analysis of a nationally representative survey from the China Family Panel Studies (N = 9,406) revealed that individuals with moderate risk preferences were more likely to purchase commercial insurance compared to those at the extremes of the risk spectrum (i.e., highly risk-seeking or risk-averse). Second, cross-validation through a separate sample (N = 208) confirmed the reliability of this inverted U-shaped relationship. Our findings suggest that moderate risk-tolerant individuals may strategically balance risk mitigation and cost-benefit considerations, driving their propensity to insure. These results advance theoretical frameworks in behavioral economics and have practical implications for insurers seeking to refine risk segmentation strategies and product design. By elucidating the nonlinear nature of risk preferences, this study bridges gaps in understanding insurance market dynamics therefore informs targeted marketing interventions for distinct consumer segments.