To Insure or not to Insure? Considerations on Irrational Strategies to Take Out Insurance

Michael Theil
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Michael Theil: Department of Risk Management and Insurance, Vienna University of Economics and Business Administration, A-1090 Vienna

The Geneva Papers on Risk and Insurance - Issues and Practice, 2000, vol. 25, issue 2, 288-295

Abstract: In earlier work by Slovic et al. (Journal of Risk and Insurance, 1977 pp. 237–258) studying insurance decisions under laboratory conditions, subjects showed a clear and repeated preference to purchase insurance against high-probability, low-loss events rather than the opposite. This result comes as a surprise as the primary objects for insurance are most commonly risks with some large loss potential but occurring only rarely. In subsequent studies, the reported effect was somewhat reduced but a convincing explanation for this odd behavior was not offered. The present study analyses preceding work with respect to its research design and presents an alternative problem solution. The Geneva Papers on Risk and Insurance (2000) 25, 288–295. doi:10.1111/1468-0440.00066

Date: 2000
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