Different Contexts, Different Risk Preferences?

Abstract

We examine the stability of risk preferences across contexts involving different stakes. Using data on households' deductible choices in three property insurance coverages and their limit choices in two liability insurance coverages, we assess the stability across the five contexts in the ordinal ranking of the households' willingness to bear risk. We find evidence of stability across contexts involving stakes of the same magnitude, but not across contexts involving stakes of very different magnitudes. Our results appear to be robust to heterogeneity in wealth and access to credit, complicating seemingly ready explanations.