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A Micro-Econometric Analysis of Risk-Aversion and the Decision to Self-Insure

Cicchetti, Charles J. and Dubin, Jeffrey A. (1992) A Micro-Econometric Analysis of Risk-Aversion and the Decision to Self-Insure. Social Science Working Paper, 784. California Institute of Technology , Pasadena, CA. (Unpublished)

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This study estimates a von Neumann-Morgenstern utility function using market data and micro-econometric methods. We investigate the decision whether to purchase insurance against the risk of telephone line trouble in the home. Using the choices of approximately 10,000 residential customers, we determine the shape of the utility function and the degree of risk-aversion. We find that risk-aversion varies systematically in the population and varies with the level of income and that the observed choice behavior is consistent with expected utility maximization. We are unable to detect the presence of ambiguity effects or over-weighting of low-probability events.

Item Type:Report or Paper (Working Paper)
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Additional Information:We thank Chris Pleatsikas and Kristina Sepetys for research assistance, and David Grether, Louis Wilde, and seminar participants at the lTSC Department of Decision Systems for their helpful comments. Published as Cicchetti, Charles J., and Jeffrey A. Dubin. "A microeconometric analysis of risk aversion and the decision to self-insure." Journal of political Economy 102, no. 1 (1994): 169-186.
Group:Social Science Working Papers
Subject Keywords:Self insurance, Risk aversion, Utility functions, Expected utility, Customers, Extended warranties, Political economy, Marketing strategies, Economic models, Homeowners insurance
Series Name:Social Science Working Paper
Issue or Number:784
Record Number:CaltechAUTHORS:20170830-133904499
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80970
Deposited By: Jacquelyn Bussone
Deposited On:30 Aug 2017 21:01
Last Modified:03 Oct 2019 18:37

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