Risk attitudes with state-dependent indivisibilities in consumption

Markus Rieger-Fels

No 805, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Some consumption opportunities are both indivisible and only valuable in particular tates of nature. The existence of such state-dependent indivisible consumption opportunities influences a person's risk attitudes. In general, people are not risk averse anymore even if utility from divisible consumption is concave. I propose a definition of insurance in the context of state-dependent preferences and investigate the different motives underlying insurance demand. The same reasons that rule out risk aversion turn out to be the basis of a desire to insure. This calls into question the standard approach that bases insurance demand on risk aversion with important implications for policy and research.

Keywords: risk preferences; indivisible consumption; insurance; gambling (search for similar items in EconPapers)
JEL-codes: D01 D81 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-bec, nep-ias and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Risk Attitudes with State-Dependent Indivisibilities in Consumption (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:805

DOI: 10.4419/86788933

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