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Puzzles of insurance demand and its biases: A survey on the role of behavioural biases and financial literacy on insurance demand

Francisco Pitthan and Kristof De Witte

Journal of Behavioral and Experimental Finance, 2021, vol. 30, issue C

Abstract: This paper reviews the puzzles of insurance demand, and provides an overview of behavioural-based explanations on the concept of underinsurance. In particular, the study outlines the biases (among myopia, narrow framing and others) that help to explain the existence of those puzzles. The results indicate that biases do motivate the chances of underinsurance through sub-optimal probability weighting or wrong probability estimation of risks. We discuss that the literature has fallen short in providing possible solutions for the puzzles, with this study proposing financial literacy treatments, that aim at improving knowledge and use of finance, as a systematic solution.

Keywords: Insurance demand; Underinsurance; Behavioural finance; Financial literacy (search for similar items in EconPapers)
JEL-codes: D80 D91 G22 G41 G53 I22 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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DOI: 10.1016/j.jbef.2021.100471

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