Demand for insurance with nonadditive probabilistic beliefs

Jianli Wang, Yingrong Su, Jingyuan Li and Ho Yin Yick

Bulletin of Economic Research, 2022, vol. 74, issue 3, 854-862

Abstract: This work examines optimal demand for insurance coverage when the insured has nonadditive subjective probability beliefs about loss uncertainty. By showing the equivalent conditions of Jensen's inequality under the Choquet expected utility framework, we not only provide the threshold on the insurance premium for Mossin's theorem to hold but also explore the joint effect of both risk aversion and uncertainty aversion on optimal insurance demand.

Date: 2022
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