Insurance and portfolio decisions: Two sides of the same coin?

Olivier Armantier (), Jérôme Foncel and Nicolas Treich
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Olivier Armantier: Federal Reserve Bank of New York
Jérôme Foncel: Université de Lille

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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 expectations, 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.

Keywords: Portfolio decisions; Insurance; Wealth (search for similar items in EconPapers)
Date: 2023-06
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Citations: View citations in EconPapers (6)

Published in Journal of Financial Economics, 2023, 148 (3), pp.201-219. ⟨10.1016/j.jfineco.2023.03.003⟩

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Journal Article: Insurance and portfolio decisions: Two sides of the same coin? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04062463

DOI: 10.1016/j.jfineco.2023.03.003

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