Risk Aversion, Risk Behavior and Demand for Insurance: A Survey

Abstract

Determinants of risk attitudes of individuals are of great interest in the growing area of behavioral economics that focuses on the individual attributes, psychological or otherwise, that shape common financial and investment practices. The purpose of this paper is to review the empirical literature on risk aversion (and risk behavior) with a particular focus on insurance demand or consumption. Empirical research on risk aversion may be categorized into two main areas, i.e. 1) the measurement and magnitude of risk aversion, 2) the empirical analysis of socio-demographic variables associated with risk aversion. The paper reviews this literature as well as empirical studies on the demand for insurance considering the use of variables associated with relative risk aversion.

Keywords: Risk aversion, Insurance demand, Education, Human development

JEL Classification: G22, D10, D81