Insurance decisions under nonperformance risk and ambiguity

Timo Lambregts, Paul van Bruggen, Han Bleichrodt

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

An important societal problem is that people underinsure against risks that are unlikely or occur in the far future, such as natural disasters and long-term care needs. One explanation is that uncertainty about the risk of non-reimbursement induces ambiguity averse and risk prudent decision makers to take out less insurance. We set up an insurance experiment to test this explanation. Consistent with the theoretical predictions, we find that the demand for insurance is lower when the nonperformance risk is ambiguous than when it is known and when decision makers are risk prudent. We cannot attribute the lower take-up of insurance to our measure of ambiguity aversion, probably because ambiguity attitudes are richer than aversion alone.
Original languageEnglish
Pages (from-to)229-253
JournalJournal of Risk and Uncertainty
Volume63
DOIs
Publication statusPublished - Nov 2021
Externally publishedYes

Keywords

  • Ambiguity
  • Insurance
  • Nonperformance risk
  • Prudence

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