Year: 2015
Type: report
Abstract: This paper describes the results of a web-based multi-period insurance purchasing experiment focusing on how individuals make insurance choices for low-probability, high-consequence events.Participants were told the probability and resulting losses of a hurricane occurring and were informed that these were stable from period to period.We contrast the model of informed expected utility [E(U)] maximization with alternative behavioral models of choice as explanations for what we observe.The majority of individuals (63 percent) behaved in ways that were consistent with expected utility theory, although we do not know whether these individuals were utilizing other decision rules.A sizeable number of uninsured individuals decided to purchase insurance after learning that they had suffered a loss and revealing that they were unhappy about having been uninsured.In this sense, the study shows that a loss coupled with emotions is likely to play an important role in convincing an uninsured person to buy coverage.In contrast, insured individuals who did not suffer a loss rarely dropped coverage.The paper concludes by raising questions regarding the welfare implications of this behavior.
DOI: 10.3386/w20886
Authors: Howard Kunreuther, Mark Pauly
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
Awards: DMUU: Individual and Group Decision Making Under Climate Uncertainty, Individual Decisions in the Face of Natural Hazards: An Analysis of Decades of Flood Insurance Purchases, Claims Filed and Risk Management under the National Flood Insurance Progra, Individual Decisions in the Face of Natural Hazards: An Analysis of Flood Insurance Purchases, Claims Filed and Reform Options for the National Flood Insurance Program, DMUU: Center on Climate Decision Making, G5088594262
OpenAlex ID: W1740524593