Risk Preference Heterogeneity and Multiple Demand for Insurance
- Authors: Li Donni, P
- Publication year: 2010
- Type: Contributo in atti di convegno pubblicato in volume
- Key words: Risk Preferences, Multiple Demand for Insurance, Finite Mixture Model, Long-Term Care Insurance, Medigap, Annuity, Life Insurance
- OA Link: http://hdl.handle.net/10447/59600
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