Neglecting Disaster: Why Don't People Insure Against Large Losses?
AbstractThis paper provides a theoretical explanation for the common observation that people often fail to purchase insurance against low-probability high-loss events even when it is offered at favorable premiums. We hypothesize that individuals maximize expected utility but face an explicit or implicit cost to discovering the true probability of rare events. This cost constitutes a threshold that may inhibit purchase but may be offset in several ways by suppliers of insurers and state regulators. Copyright Kluwer Academic Publishers 2004
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Bibliographic InfoArticle provided by Springer in its journal Journal of Risk and Uncertainty.
Volume (Year): 28 (2004)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=100299
decision-making; search; uncertainty; information; insurance;
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