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Am Econ Rev. 2012 Oct;102(6):2606-2038.

How General are Risk Preferences? Choices under Uncertainty in Different Domains.

Author information

1
Department of Economics, Stanford University, and NBER, leinav@stanford.edu.
2
Department of Economics, MIT, and NBER, afink@mit.edu.
3
Department of Economics, MIT, iuli@mit.edu.
4
Department of Internal Medicine, School of Medicine, Stanford University, mrcullen@stanford.edu .

Abstract

We analyze the extent to which individuals' choices over five employer-provided insurance coverage decisions and one 401(k) investment decision exhibit systematic patterns, as would be implied by a general utility component of risk preferences. We provide evidence consistent with an important domain-general component that operates across all insurance choices. We find a considerably weaker relationship between one's insurance decisions and 401(k) asset allocation, although this relationship appears larger for more "financially sophisticated" individuals. Estimates from a stylized coverage choice model suggest that up to thirty percent of our sample makes choices that may be consistent across all six domains.

KEYWORDS:

Insurance; Portfolio choice; Risk aversion; Uncertainty

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