Francesca Molinari - Cornell

Preference Types, Limited Attention and Welfare in Property Insurance Markets

    Date:  09/21/2017 (Thu)

    Time:  3:30pm- 5:00pm

    Location:  Social Sciences room 113

    Organizer:  Adam Rosen

Meeting Schedule: Login or email the organizer to schedule a meeting.

    All meetings will be in Social Science room 242 unless otherwise noted.

    8:45am - Adam Rosen @Washington Duke, 221B

    9:30am - Jia Li @228G

   10:00am - Francesco Bianchi @201B

   10:30am - Andrew Patton @228-F

   11:00am - Takuya Ura

   11:30am - Sherry Wu

   12:00pm - Lunch: Francesca, Adam, Andrew, Fede, ...

    1:30pm - Federico @240

    2:00pm - Jackson Bunting

    2:30pm - Modibo @ 220A

    3:00pm - Seminar preparation

    3:30pm - Seminar Presentation (3:30pm to 5:00pm)

    5:00pm - Margaux Luflade

    6:15pm - Dinner: Francesca, Adam, Takuya...

    Additional Comments:  ABSTRACT: This paper builds a procedure to partially identify and estimate a mixture model of decision making under risk, where households behave either according to standard expected utility theory or according to the dual theory of choice under risk Yaari (1987). The model allows for unobserved heterogeneity in households' attitudes towards risk and attention levels within each preference type. It is estimated on data on households' deductible choices across three lines of property insurance coverage, and the estimation results are used to measure the welfare implications of policy interventions in these markets. Specifically, a restructuring of the auto coverage lines offered to households is considered, where two lines of coverage currently offered as separate products are combined into a single product. Although prima facie such an intervention might appear welfare reducing by restricting the choice set of households, average household welfare may increase due to non-expected utility behavior of a subset of households in the sample. The proposed procedure leverages advances in random set theory to overcome identification problems due to heterogeneity in households' attention levels. It is computationally tractable and informative about the underlying preference structure, the shares of various preference types and attention levels, and the welfare effects of the intervention of interest.