An Experiment on Rational Insurance Decisions

Richard Watt (), Francisco Vázquez and Ignacio Moreno

Theory and Decision, 2001, vol. 51, issue 2, 247-296

Abstract: We describe the results of an experiment on decision making in an insurance context. The experiment was designed to test for the underlying rationality of insurance consumers, where rationality is understood in usual economic terms. In particular, using expected utility as the preference function, we test for positive marginal utility, risk aversion, and decreasing absolute risk aversion, all of which are normal postulates for any microeconomic decision context under uncertainty or risk. We find that there the discrepancy from rational decision making increases with the sophistication of the rationality criteria, that irrationality concerning fair premium contracts is uncharacteristically high, and that the slope of absolute risk aversion seems to depend on the format of the insurance contract. Copyright Kluwer Academic Publishers 2001

Keywords: Contract format; Experiments; Insurance; Premiums; Rationality (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (7)

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DOI: 10.1023/A:1015559127778

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