The Nature of Risk Preferences: Evidence from Insurance Choices
Abstract
We use data on insurance deductible choices to estimate a structural model of risky choice that incorporates 'standard' risk aversion (diminishing marginal utility for wealth) and probability distortions. We find that probability distortions - characterized by substantial overweighting of small probabilities and only mild insensitivity to probability changes - play an important role in explaining the aversion to risk manifested in deductible...
Paper Details
Title
The Nature of Risk Preferences: Evidence from Insurance Choices
Published Date
Sep 20, 2012
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