Affective Decision Making in Insurance Markets

Anat Bracha

Yale School of Management Working Papers from Yale School of Management

Abstract: This paper suggests incorporating affective considerations into decision making theory and insurance decision in particular. I describe a decision maker with two internal accounts - the rational account and the mental account. The rational account decides on insurance to maximize expected (perceived) utility, while the mental account chooses risk perceptions which then affect the perceived expected utility. The two accounts interact to reach a decision which is composed of both risk perception and insurance level. The model is based on psychology research and shows interesting results for the insurance markets. Also, this framework helps to distinguish between report and choice tasks.

Keywords: Insurance; risk perception; motivated reasoning and dual-processes (search for similar items in EconPapers)
Date: 2004-01-01, Revised 2004-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:wpaper:amz2665

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