APPLICATION OF PROSPECT THEORY TO MICROINSURANCE BASED ON CONTINGENT VALUATION APPROACH FOR POOR POPULATION IN UKRAINE

Aram Shirinyan and Lada Shirinyan
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Aram Shirinyan: Department of Finance, National University of Food Technologies (Kyiv) & Research and Education Center of the National Academy of Sciences of Ukraine
Lada Shirinyan: Department of Finance, Institute of Economics and Management, National University of Food Technologies

Ekonomski pregled, 2023, vol. 74, issue 2, 300-332

Abstract: This paper takes a behavioral economics approach and empirically tests if Prospect Theory can explain behavior of low-income people in Ukraine. The study uses the contingent valuation method due to direct inquiry of low-income people, in a survey, how much they would be willing to pay for insurance and to get back in case of an insurance event arising. This paper provides suggestive evidence that according to Prospect Theory poor individuals make decisions based on expectations of loss or gain from their current relative position and are more sensitive to losses compared to gains. The work also answers the question concerning the microinsurance: can microinsurance be a business proposition and provide value for low income people at the same time? The results lead to the power-law distribution of potential clients according to the price of a microinsurance service. The obtained correlations help to formulate strategies to tap the low-income market in the country.

Keywords: microinsurance; prospect theory; contingent valuation; low-income people; subjective utility (search for similar items in EconPapers)
JEL-codes: D12 D81 G22 Z13 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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