Estimation Of Risk Aversion And Influencing Factors In Chinese Auto Damage Insurance Market

Risk aversion is an ancient and basic concept in classical economics and finance.The coefficient of risk aversion is the measure of the degree of risk aversion for rational economic people.Therefore,in the fields of economics,finance and insurance,it has a very important practical significance to estimate the coefficients of risk aversion of people in the real world.The strange thing is that research on the coefficient of risk aversion based on Chinese insurance market participants is pretty rare.Therefore,this paper estimates the coefficient of risk aversion in Chinese auto damage insurance market,which provides a theoretical basis for designing products and improving systems for Chinese insurance market.In this paper,the main idea for estimation is that the more the coefficient of risk aversion a policyholder has,the more likely he/she is to choose the non-deductible insurance.In this case,by observing the deductible choices,we can statistically infer the distributions of the coefficients of risk aversion.In order to do this,this paper improves the theoretical model to accord with the relative deductible system in Chinese auto damage insurance market,and deduces the necessary and sufficient conditions for the policyholders to choose the non-deductible insurances.Based on this,this paper establishes the empirical model,which reveals the intrinsic relation between the unobserved risk aversion and observed variables.This paper presents the estimation results in two different situations.With no unobserved heterogeneity,the absolute coefficients of risk aversion is estimated by a clever and simple method,to be 1.79*10^-2 US^-1.With unobserved heterogeneity,the absolute coefficients of risk aversion is estimated by Bayesian posterior estimation,to be9.82*10^-3 US^-1.Based on the results,this paper finds three factors which significantly influence the absolute coefficient of risk aversion:car value,age characteristics and gender.In the discussion related to gender,this paper finds the possible problem in Chinese insurance market that some policyholders may not fully understand the meaning of the non-deductible insurance that they made the irrational choices.