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The Impact of Self-protection and Self-insurance on Individual Response to Risk

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  • Shogren, Jason F

Abstract

We develop four experimental markets to examine how individuals respond to risk: self-protection and self-insurance in both private and collective auctions. First, we find evidence that the mechanism used to reduce risk is important. Results indicate that the upper and lower bounds on value were elicited by the private self-protection and the collective self-insurance market, respectively. Second, the robustness of these results declined with low-probability lotteries. We find further evidence that individuals overestimate the impact of low-probability events. Overestimation decreased, however, with repeated market exposure. Third, the four markets induced rapid value formation. Usually only one or two additional market trials were necessary before an individual's perception and valuation of reduced risk stabilized. Copyright 1990 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 3 (1990)
Issue (Month): 2 (June)
Pages: 191-204

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Handle: RePEc:kap:jrisku:v:3:y:1990:i:2:p:191-204

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. Aric Shafran, 2011. "Self-protection against repeated low probability risks," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 263-285, June.
  2. Jason Shogren & Thomas Crocker, 1991. "Cooperative and noncooperative protection against transferable and filterable externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 195-214, June.
  3. Cherry, Todd L. & Crocker, Thomas D. & Shogren, Jason F., 2003. "Rationality spillovers," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 63-84, January.
  4. Svensson, Mikael & Vredin Johansson, Maria, 2007. "Willingness to Pay for Private and Public Safety: Why the Difference?," Working Papers 2007:2, Örebro University, School of Business.
  5. Buhr, Brian L. & Hayes, Dermot J. & Shogren, Jason F. & Kliebenstein, James B., 1993. "Valuing Ambiguity: The Case Of Genetically Engineered Growth Enhancers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
  6. Shogren, Jason F. & Crocker, Thomas D., 1999. "Risk and Its Consequences," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 44-51, January.
  7. Alberini, Anna & Ščasný, Milan, 2013. "Exploring heterogeneity in the value of a statistical life: Cause of death v. risk perceptions," Ecological Economics, Elsevier, vol. 94(C), pages 143-155.
  8. List, John A. & Shogren, Jason F., 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 37(2), pages 193-205, October.
  9. Dorte Gyrd-Hansen, 2013. "Using the Stated Preference Technique for Eliciting Valuations: The Role of the Payment Vehicle," PharmacoEconomics, Springer, vol. 31(10), pages 853-861, October.
  10. Warziniack, Travis W. & Finnoff, David & Shogren, Jason F., 2013. "Public economics of hitchhiking species and tourism-based risk to ecosystem services," Resource and Energy Economics, Elsevier, vol. 35(3), pages 277-294.
  11. Shogren, Jason F., 2006. "Experimental Methods and Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 19, pages 969-1027 Elsevier.
  12. Shogren, Jason F., 1993. "Experimental Markets And Environmental Policy," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 22(2), October.
  13. John Ashton & Robert S. Hudson, 2011. "Should the joint provision of credit insurance with unsecured lending be prohibited? An examination of the UK payment protection insurance market," Working Papers 11008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  14. Andrea Morone & Ozlem Ozdemir, 2006. "Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence," Papers on Strategic Interaction 2006-34, Max Planck Institute of Economics, Strategic Interaction Group.

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