Happy first day of term everyone! Looking forward to teaching some econometrics today.

Mood of the morning.

Removing tail risk through tort reform increases the number of trauma units in hospitals and that reduces traffic fatalities in the affected HSAs. Fascinating presentation by Meghan Esson at the 2024 CEAR/ MRIC Behavioral Insurance Workshop.

And finally, the evidence: whether we use cross-sectional analyses like Fama-MacBeth, or within analyses like TWFE panels, the interaction always shows in the direction of our hypothesis. This happens both for skewness in historic returns and for expected risk neutral skewness from option prices.

We then go through the motions of empirically measuring both ambiguity and skewness (there are so many ways in which that can be done!). Here is our ambiguity measure (originally due to Izhakian, 2020) on the market level:

Using a probability weighting set-up and a simple CAPM, we show that skewness preferences are moderated by the level of ambiguity in returns. More ambiguity returns of right-skewed stocks decrease. Ambiguity increases likelihood insensitivity which leads to skewness seeking preferences.

Wanted to present a working paper here that @valuz, Ralf Elsas and I have been working on for a while now: ssrn.com/abstract=471.... This maybe a bit unusual for #Econsky as it not only has decision theory, but also some asset pricing in it. A thread:

Taco Saturday doesn’t really have a nice ring to it, but they were delicious.

Boy, our elf on the shelf certainly had a devious little trick he played on our kids tonight.

Below we have media coverage on Google News. SRL non-renewals closely follow it. In Spring 2014, parts of BW unrelated to SRLs were repealed. Coverage stops. Non-renewals stop. SRL prices keep rising.
 
Our takeaway: (un)sophistication. Emotion laden news mattered more than tailored renewal letters.

Do property effects explain non-renewals? Doesn’t seem like it. Property sales result in insurance cancellations (for a rebate), not non-renewals (lapse at expiration date). Figure shows no evidence of cancellations. We also examine housing transactions by census tract – no effects in 2013/2014.

It gets stranger. Non-renewals are disconnected from prices, starting before prices increase and ending while prices are still increasing. An anticipation effect.
 
Anticipation(!). Are consumers being super-sophisticated? Find out below. (Spoiler: They’re not.)

What do we expect SRLs to do? Keep insuring. They may dislike higher prices, but the subsidized insurance remains a risk-reducing, money-making prospect.
 
What did they actually do? They drop their insurance (smh). Using diff-in-diff estimations, we find that 25% of SRLs stop insuring.

Here’s what happened to prices relative to a (lower risk) control group who was paying the same price before the reform. Prices go up around 25% each year. First dotted line is when the reform passed; second is when it started affecting prices.

#EconSky
Severe climate events (floods, wildfires) are raising insurance costs – on average, home insurance premiums increased 21% this year. Will policyholders keep insuring their homes?
We (@blcollier2.bsky.social, @tobiashuber.bsky.social, Andreas Richter & I) explore this in a new working paper.

Her: Honey, can you plant some bamboo for me?
Me: Sure, how much work can that be?

The answer is 5 hours.

Harvest time!

Species wise I’d say penguins. Individual wise, definitely this boy: