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The Effects of Statistical Information on Risk and Ambiguity Attitudes, and on Rational Insurance Decisions

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Author Info

  • Peter P. Wakker

    ()
    (Econometric Institute, Erasmus University, 3000 DR Rotterdam, The Netherlands)

  • Daniëlle R. M. Timmermans

    ()
    (Institute of Social Medicine, EMGO Institute, Free University of Amsterdam, 1081 BT Amsterdam, The Netherlands)

  • Irma Machielse

    ()
    (Rijksvoorlichtingsdienst, 2500 EA The Hague, The Netherlands)

Abstract

This paper presents a field study into the effects of statistical information concerning risks on willingness to take insurance, with special attention being paid to the usefulness of these effects for the clients (the insured). Unlike many academic studies, we were able to use in-depth individual interviews of a large representative sample from the general public (N=476). The statistical information that had the most interesting effects, "individual own past-cost information," unfortunately enhanced adverse selection, which we could directly verify because the real health costs of the clients were known. For a prescriptive evaluation this drawback must be weighted against some advantages: a desirable interaction with risk attitude, increased customer satisfaction, and increased cost awareness. Descriptively, ambiguity seeking was found rather than ambiguity aversion, and no risk aversion was found for loss outcomes. Both findings, obtained in a natural decision context, deviate from traditional views in risk theory but are in line with prospect theory. We confirmed prospect theory's reflection at the level of group averages but falsified it at the individual level.

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File URL: http://dx.doi.org/10.1287/mnsc.1070.0735
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 53 (2007)
Issue (Month): 11 (November)
Pages: 1770-1784

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Handle: RePEc:inm:ormnsc:v:53:y:2007:i:11:p:1770-1784

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Keywords: risk attitude; ambiguity; health insurance; adverse selection;

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Cited by:
  1. Jean Desrochers & J. Francois Outreville, 2013. "Uncertainty, Ambiguity and Risk Taking: an experimental investigation of consumer behavior and demand for insurance," ICER Working Papers 10-2013, ICER - International Centre for Economic Research.
  2. Vetter, Stefan & Heiss, Florian & McFadden, Daniel & Winter, Joachim, 2013. "Risk attitudes and Medicare Part D enrollment decisions," Economics Letters, Elsevier, vol. 119(2), pages 128-132.
  3. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
  4. Martin G. Kocher & Stefan T. Trautmann, 2010. "Selection into auctions for risky and ambiguous prospects," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-06, School of Economics, University of East Anglia, Norwich, UK..
  5. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo Group Munich.
  6. Elisabeth Gsottbauer & Jeroen Bergh, 2011. "Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(2), pages 263-304, June.

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