How general are risk preferences? Choices under uncertainty in different domains

Abstract

We analyze the extent to which individuals' choices over five employer-provided insurance coverage decisions and one 401(k) investment decision exhibit systematic patterns, as would be implied by a general utility component of risk preferences. We provide evidence consistent with an important domain-general component that operates across all insurance choices. We find a considerably weaker relationship between one's insurance decisions and 401(k) asset allocation, although this relationship appears larger for more "financially sophisticated" individuals. Estimates from a stylized coverage choice model suggest that up to 30 percent of our sample makes choices that may be consistent across all 6 domains.United States. Social Security Administration (grant #10-M-98363-1-02)National Institute on Aging (NIA (R01 AG032449)National Science Foundation (U.S.) (grant #SES-0643037)Alfred P. Sloan FoundationAluminum Company of AmericaJohn D. and Catherine T. MacArthur Foundation (Network on Socioeconomic Status and Health