Economics, Econometrics and Finance
3 years ago

Limited choice sets in insurance reveal low risk aversion levels.

Heterogeneous Choice Sets and Preferences
Joshua C. Teitelbaum, Francesca Molinari, Maura Coughlin, Levon Barseghyan

Paper Summary

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The article explores how people make choices when their options are not all known. The researchers developed a method to analyze these hidden choice sets based on the smallest possible set size. They found that households' risk preferences and choice sets in auto insurance can be explained by expected utility theory with low risk aversion and varied choice sets. Other models were not supported by the data.