Insurance demand and social comparison: An experimental analysis

Andreas Friedl, Katharina Lima de Miranda and Ulrich Schmidt

Journal of Risk and Uncertainty, 2014, vol. 48, issue 2, 97-109

Abstract: This paper analyzes whether social comparison can explain the low take-up of disaster insurance usually reported in field studies. We argue that risks in the case of disasters are highly correlated between subjects whereas risks for which high insurance take-up can be observed (e.g. extended warranties or cell phone insurance) are typically idiosyncratic. We set up a simple model with social reference points and show that in the presence of inequality aversion social comparison makes insurance indeed less attractive if risks are correlated. In addition we conducted a simple experiment which confirms these theoretical results. The average willingness to pay for insurance is significantly higher for idiosyncratic than for correlated risks. Copyright Springer Science+Business Media New York 2014

Keywords: Disaster insurance; Social reference points; Loss aversion; Inequality aversion; C91; D03; D14; D81; G22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11166-014-9189-9 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:48:y:2014:i:2:p:97-109

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11166/PS2

DOI: 10.1007/s11166-014-9189-9

Access Statistics for this article

Journal of Risk and Uncertainty is currently edited by W. Kip Viscusi

More articles in Journal of Risk and Uncertainty from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().