Can waste aversion affect demand for insurance? Evidence from experiment and survey

Sai Krishnan S. and Subramanian S. Iyer

Economics Letters, 2022, vol. 216, issue C

Abstract: Evidence shows that people are discouraged from buying fair insurance by the thought that if they do not suffer a loss, they will have wasted their money. We extend this theory to test if waste aversion could lead to a reduction in the amount of coverage sought. We deploy a multimethod design wherein we first run incentive-compatible experiments to establish a cause-and-effect relationship. We follow it up with a survey rolled out to actual buyers of insurance to generate external validity for our results. Our findings show that waste averters demand lesser insurance coverage than non-waste averters.

Keywords: Behavioral insurance; Waste aversion; Insurance demand (search for similar items in EconPapers)
JEL-codes: D81 G22 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:216:y:2022:i:c:s016517652200177x

DOI: 10.1016/j.econlet.2022.110594

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