Insurance and Portfolio Decisions: Two Sides of the Same Coin?

Olivier Armantier, Jérôme Foncel and Nicolas Treich

No 23-1425, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study insurance and portfolio decisions, two opposite risk retention tradeoffs. Using household level data, we identify the first joint determinants (e.g. subjective expecta-tions, risk attitude) and frictions (e.g. liquidity constraints, financial literacy) in the literature. We also find key differences between the two decisions. Notably, contrary to economic intuition, risky asset holding and insurance coverage both increase with wealth. We show that this apparent puzzle is driven in part by a specific behavioral pattern (the poor invest too conservatively, while the rich over-insure), and can be explained by two factors: regret avoidance and nonperformance risk.

JEL-codes: C3 D14 D81 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-fle and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://www.tse-fr.eu/sites/default/files/TSE/docu ... rtfolio_appendix.pdf Appendix (application/pdf)

Related works:
Journal Article: Insurance and portfolio decisions: Two sides of the same coin? (2023)
Working Paper: Insurance and portfolio decisions: Two sides of the same coin? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:128034

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