Abstract: Microinsurance is one of the key instruments in addressing the risk and vulnerability of economic shocks for the low-income households in the Global South. However, microinsurance take-up globally is puzzlingly low. The question is why. Using primary panel data with incentivised lab-in-the-field experiments conducted in five rural villages in India, the paper first examines the nature of risk and time preferences of the individuals and then examines the association of risk and time preferences and prior shocks on microinsurance take-up. The findings highlight a few key insights. First, I find that the majority of the individuals are not only risk averse, but they are loss averse and underweight large probability events. Second, I find that the majority of the subjects are present biased. Third, I find that impatience is associated with a lower probability to purchase any insurance while risk-seeking individuals and individuals who experienced a prior shock such as a death in the family are associated with a higher probability to purchase any insurance. Finally, I find that individuals who are loss averse and underweight large probability incidents are associated with a lower probability to purchase any microinsurance.

Abstract: The proclamation in general economic theory is that preferences are stable. However, recent empirical literature using experiments has questioned this claim. In light of this ongoing discussion, the current research provides empirical evidence from India. The current work draws from three waves of primary surveys supplemented with incentivised lab-in-the-field experiments conducted between 2016 and 2020 in five rural villages in India to examine the temporal stability of risk and time preferences and possible determinants for changes in risk and time preferences. The findings highlight key insights. First, I find a positive association between responses across time for risk preference but none for time preference. Second, below-the-poverty-line households are risk seeking in comparison to households above the line. Third, various household-level shocks such as illness, injury, death of a family member, job loss, and marriage are associated with risk aversion while crop failure and loss of employment are linked with more patience.