Insurance and portfolio decisions: Two sides of the same coin?

Insurance and portfolio decisions entail risk retention tradeoffs, according to research. Researchers found that subjective expectations, risk attitude, liquidity restrictions, and financial literacy drive these choices by evaluating household-level data. Contrary to economic perception, money increases hazardous asset holding and insurance coverage. The poor invest cautiously while the rich over-insure due to regret avoidance and nonperformance risk concerns, explaining this seeming conundrum.

Image courtesy of interviewee. December 20, 2023

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