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Inferring risk perceptions and preferences using choice from insurance menus: theory and evidence

Ericson, Keith Marzilli, Kircher, Philipp, Spinnewijn, Johannes and Starc, Amanda (2015) Inferring risk perceptions and preferences using choice from insurance menus: theory and evidence. . Industrial Organization and Public Economics, Centre for Economic Policy Research, London, UK.

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Abstract

Demand for insurance can be driven by high risk aversion or high risk. We show how to separately identify risk preferences and risk types using only choices from menus of insurance plans. Our revealed preference approach does not rely on rational expectations, nor does it require access to claims data. We show what can be learned non-parametrically from variation in insurance plans, offered separately to random cross-sections or offered as part of the same menu to one cross-section. We prove that our approach allows for full identification in the textbook model with binary risks and extend our results to continuous risks. We illustrate our approach using the Massachusetts Health Insurance Exchange, where choices provide informative bounds on the type distributions, especially for risks, but do not allow us to reject homogeneity in preferences.

Item Type: Monograph (Discussion Paper)
Official URL: https://cepr.org/
Additional Information: © 2015 The Authors
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 04 May 2018 14:28
Last Modified: 18 Jun 2019 23:24
URI: http://eprints.lse.ac.uk/id/eprint/87780

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