Unstable risk preferences and their use in modeling consumption functions

In this thesis, I deal with the instability of risk preferences and the correlation between consumption, disposable income, and risk aversion. For first, I summarize the theory of preferences from the point of view of historic economic theories. Then I show attitudes for risk preferences and calculation of insurance which is one of the main options to protect against risk. In the final part of the theoretical part, I summarize the main view on estimating the consumption function. At the beginning of the empirical part, I compare consumption and expenditures on insurance with the business cycle of the Czech republic to show the instability of risk preferences. For this analysis, I use aggregate consumption, expenditures on insurance, average propensity to consume, and marginal propensity to consume. The data showed higher volatility of expenditures on insurance than aggregate consumption in the crisis. For another, I estimated two models, in which I deal with the correlation between disposable income and risk preferences. In the first model, I managed to find some correlation between income from the dependent activity. The second model showed the fact that "wealth“ rather than its dynamics, plays a role in risk preferences or insurance expenditures. The resulting growth in insurance depends on the income group, ie the level of income. In the second part of the analytical part, I estimate consumption as a function of disposable income and risk preferences. In this case, the growth of disposable income is not essential for the growth of consumption, but rather the level of income. The effect of consumption growth decreases with increasing income decile, and thus for high-income groups, this effect will be lower. As risk aversion grows, consumption grows also.