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Levon Barseghyan (Cornell)
19 October 2011 @ 12:45
- Past event
“The Nature of Risk Preferences: Evidence from Insurance Choices”
(Note: the seminar is on Wednesday)
Abstract:
We use data on insurance deductible choices to estimate a structural model of risky choice that permits “standard” risk aversion, loss aversion, and probability weighting. We show that loss aversion and probability weighting – though not separately identified without strong parametric assumptions – both imply a distortion of probabilities, and we demonstrate that such probability distortions are identified. We find that probability distortions – in the form of substantial overweighting of claim probabilities – play an important role in explaining the aversion to risk manifested in deductible choices. Once we allow for probability distortions, standard risk aversion is relatively small.