How General Are Risk Preferences?
We examine the extent to which an individual's actual insurance and
investment choices display a stable ranking in willingness to bear risk, relative to his
peers, across different contexts. We do so by examining the same individuals' decisions
regarding their 401(k) asset allocations and their choices in five different employer-
provided insurance domains, including health and disability insurance. We reject the
null that there is no domain-general component of preferences. Among the five insurance domains, the magnitude of the domain-general component of preferences appears
substantial; we find for example that one's choices in other insurance domains are substantially more predictive of one's choice in a given insurance domain than either one's
detailed demographic characteristics or one's claims experience in that domain. However, we find considerably less predictive power between one's insurance choices and
the riskiness of one's 401(k) asset allocations, suggesting that the common element of
an individual's preferences may be stronger among domains that are closer in context. We also find that the relationship between insurance and investment choices
appears considerably larger for employees who may be associated with better financial
sophistication. Overall, we view our findings as largely consistent with an important domain-general component of risk preferences.