Decision-Making Problems in Natural Disaster Insurance: Public Intervention

Tulin Altun
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Tulin Altun: Cumhuriyet University

Business and Economics Research Journal, 2018, vol. 9, issue 2, 349-361

Abstract: In this study, decisions about natural disaster insurance is examined through the behavioral literature and public interventions are suggested. Natural disasters are low probability but high consequence events. In natural disaster insurance, the risk and uncertainty are higher than in other markets, leading to more frequent decision-making problems. Intuitive thinking, systematic bias, learning mistakes, social norms and social comparisons, public aids and political interests cause non-rational decisions to be made. Non-rational behavior of insurance consumers, suppliers and public sector, which operates as a regulatory institution causes inadequate insurance coverage. Inadequate insurance coverage leads to loss of individual and social welfare and increases the government's implicit fiscal liabilities. Asymmetric paternalist political instruments, such as mandatory insurance, framing, multi-year insurance contracts can reduce decision-making problems. Regulations on insurance contracts and public-private partnerships can resolve market failures.

Keywords: Natural Disasters; Disaster Insurance; Behavioral Theory; Decision-Making Problems Public Interventions (search for similar items in EconPapers)
JEL-codes: D81 G22 H40 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0331

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