Time-Varying Risk Aversion? Evidence from Near-Miss Accidents

Abstract

We present evidence consistent with time-varying risk preferences among automobile drivers. Exploiting a unique dataset of agents’ high-frequency driving behavior collected by a mobile phone application, we show that drivers drive more conservatively following “near-miss” accidents. In a preferred specification, a nearmiss triggers a reduction in driving distance of 12.98 kilometers, in-car cellphone use by more than 100%, and highway use by 43.24%. Structural estimation results indicate that such changes in behavior are consistent with an increase in risk aversion of 10.54–43.77% and a reduction in annual insurance cost amounting to 2.04–3.31% of the average car insurance premium.