Risk Attitudes with State-Dependent Indivisibilities in Consumption

Markus Rieger-Fels

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: Some consumption opportunities, e.g. medical treatments, are both indivisible and only valuable in particular states 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-rmg
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:vfsc19:203489

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