Insurance decisions under nonperformance risk and ambiguity

Timo R. Lambregts (), Paul Bruggen and Han Bleichrodt
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Timo R. Lambregts: Erasmus University Rotterdam
Paul Bruggen: Tilburg University

Journal of Risk and Uncertainty, 2021, vol. 63, issue 3, No 1, 229-253

Abstract: Abstract An important societal problem is that people underinsure against risks that are unlikely or occur in the far future, such as natural disasters and long-term care needs. One explanation is that uncertainty about the risk of non-reimbursement induces ambiguity averse and risk prudent decision makers to take out less insurance. We set up an insurance experiment to test this explanation. Consistent with the theoretical predictions, we find that the demand for insurance is lower when the nonperformance risk is ambiguous than when it is known and when decision makers are risk prudent. We cannot attribute the lower take-up of insurance to our measure of ambiguity aversion, probably because ambiguity attitudes are richer than aversion alone.

Keywords: Ambiguity; Insurance; Nonperformance risk; Prudence (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11166-021-09364-7

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