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 driving behavior changes after driving mishaps. Following “near-miss” accidents (measured by hard brakes or hard turns), drivers drive more conservatively, which is consistent with increased risk aversion following such mishaps. In a preferred specification, a near-miss 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.