IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v85y2018i4p1103-1125.html
   My bibliography  Save this article

Multi Cumulative Prospect Theory and the Demand for Cliquet‐Style Guarantees

Author

Listed:
  • Jochen Ruß
  • Stefan Schelling

Abstract

Expected Utility Theory (EUT) and Cumulative Prospect Theory (CPT) face problems explaining preferences of long‐term investors. Previous research motivates that the subjective utility of a long‐term investment also depends on interim value changes. Therefore, we propose an approach that we call Multi Cumulative Prospect Theory. It is based on CPT and considers annual changes in the contract values. As a first application, we can show that in contrast to EUT and CPT, this approach is able to explain the demand for guaranteed products with lock‐in features, which in this framework generate a higher subjective utility than products without or with simpler guarantees.

Suggested Citation

  • Jochen Ruß & Stefan Schelling, 2018. "Multi Cumulative Prospect Theory and the Demand for Cliquet‐Style Guarantees," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(4), pages 1103-1125, December.
  • Handle: RePEc:bla:jrinsu:v:85:y:2018:i:4:p:1103-1125
    DOI: 10.1111/jori.12195
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jori.12195
    Download Restriction: no

    File URL: https://libkey.io/10.1111/jori.12195?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ruß, Jochen & Schelling, Stefan, 2021. "Return smoothing in life insurance from a client perspective," Insurance: Mathematics and Economics, Elsevier, vol. 101(PA), pages 91-106.
    2. Daliana Luca & Hato Schmeiser & Florian Schreiber, 2023. "Investment guarantees in financial products: an analysis of consumer preferences," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 906-940, October.
    3. Andreas Richter & Jochen Ruß & Stefan Schelling, 2019. "Insurance customer behavior: Lessons from behavioral economics," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 183-205, July.
    4. Stefan Graf & Jochen Ruß & Stefan Schelling, 2019. "As you like it: Explaining the popularity of life‐cycle funds with multi cumulative prospect theory," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 221-238, July.
    5. Antje Mahayni & Oliver Lubos & Sascha Offermann, 2021. "Minimum return rate guarantees under default risk: optimal design of quantile guarantees," Review of Managerial Science, Springer, vol. 15(7), pages 1821-1848, October.
    6. Pedro Brandão Graminha & Luís Eduardo Afonso, 2022. "Behavioral Economics and Auto Insurance: The Role of Biases and Heuristics," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(5), pages 200421-2004.
    7. Sweksha Srivastava & Abha Aggarwal & Pooja Bansal, 2024. "Efficiency Evaluation of Assets and Optimal Portfolio Generation by Cross Efficiency and Cumulative Prospect Theory," Computational Economics, Springer;Society for Computational Economics, vol. 63(1), pages 129-158, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:85:y:2018:i:4:p:1103-1125. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ariaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.