On the Propensity to Self-Protect

Defining propensity to self-protect as the maximum amount an individual is willing to pay for a one-unit reduction in the probability of loss, this article studies its basic behavior and its relationship to the individual’s degree of risk aversion and the initial loss probability. It is shown that if the initial loss probability is below a threshold, a more risk-averse individual has a higher propensity to self-protect, and the threshold is controlled by individuals ’ aversion to general downside risk increases and aversion to overall riskiness measured in variance.