RISK PREFERENCE HETEROGENEITY AND MULTIPLE DEMAND FOR INSURANCE

Paolo Li Donni ()

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: We examined the relationship between unobserved risk preferences and four insurance purchase decisions: health Medigap insurance, long-term insurance, life insurance and annuity. Standard economic theory assumes that individuals take decision over a set of risky domains according to their own risk preferences which are stable across decision contexts. This assumption of context-invariant risk preference has caused debate in the literature concerning its validity. Using data from the Health and Retirement Study, we exploit latent class analysis to identify conditional on predicted and realized risk how heterogeneity in risk preferences affects multiple insurance demand. Our results provide evidence of the existence of domain general component of risk preferences, although non-preference factors - such as context specificity - play also an important role. JEL Classi_cation Numbers G11, Keywords

Keywords: Risk Preferences; Multiple Demand for Insurance; Finite Mixture Model; Long-Term Care Insurance; Medigap; Annuity; Life Insurance (search for similar items in EconPapers)
JEL-codes: D82 G22 I11 (search for similar items in EconPapers)
Date: 2010-07
New Economics Papers: this item is included in nep-ias and nep-upt
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Related works:
Working Paper: Risk preference heterogeneity and multiple demand for insurance (2014)
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