Predicting Insurance Demand from Risk Attitudes

Johannes G. Jaspersen, Marc A. Ragin and Justin R. Sydnor

No 26508, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Can measured risk attitudes and associated structural models predict insurance demand? In an experiment (n = 1,730), we elicit measures of utility curvature, probability weighting, loss aversion, and preference for certainty and use them to parameterize seventeen common structural models (e.g., expected utility, cumulative prospect theory). Subjects also make twelve insurance choices over different loss probabilities and prices. The insurance choices show coherence and some correlation with various risk-attitude measures. Yet all the structural models predict insurance poorly, often less accurately than random predictions. Simpler prediction heuristics show more promise for predicting insurance choices across different conditions.

JEL-codes: D01 D81 G22 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-ias, nep-rmg and nep-upt
Note: EH IO PE TWP
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Citations: View citations in EconPapers (3)

Published as Johannes G. Jaspersen & Marc A. Ragin & Justin R. Sydnor, 2022. "Predicting insurance demand from risk attitudes," Journal of Risk and Insurance, vol 89(1), pages 63-96.

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