Advanced Search
MyIDEAS: Login to save this article or follow this journal

Ambiguity Aversion in the Field of Insurance: Insurers’ Attitude to Imprecise and Conflicting Probability Estimates

Contents:

Author Info

  • Laure Cabantous

    ()

Registered author(s):

    Abstract

    This article presents the results of a survey designed to test, with economically sophisticated participants, Ellsberg’s ambiguity aversion hypothesis, and Smithson’s conflict aversion hypothesis. Based on an original sample of 78 professional actuaries (all members of the French Institute of Actuaries), this article provides empirical evidence that ambiguity (i.e. uncertainty about the probability) affect insurers’ decision on pricing insurance. It first reveals that premiums are significantly higher for risks when there is ambiguity regarding the probability of the loss. Second, it shows that insurers are sensitive to sources of ambiguity. The participants indeed, charged a higher premium when ambiguity came from conflict and disagreement regarding the probability of the loss than when ambiguity came from imprecision (imprecise forecast about the probability of the loss). This research thus documents the presence of both ambiguity aversion and conflict aversion in the field of insurance, and discuses economic and psychological rationales for the observed behaviours. Copyright Springer Science+Business Media, LLC 2007

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1007/s11238-006-9015-1
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Theory and Decision.

    Volume (Year): 62 (2007)
    Issue (Month): 3 (May)
    Pages: 219-240

    as in new window
    Handle: RePEc:kap:theord:v:62:y:2007:i:3:p:219-240

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=100341

    Related research

    Keywords: ambiguity aversion; conflict aversion; Ellsberg paradox; insurance;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ho, Joanna L Y & Keller, L Robin & Keltyka, Pamela, 2002. " Effects of Outcome and Probabilistic Ambiguity on Managerial Choices," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 47-74, January.
    2. Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
    3. Anna Maffioletti & Michele Santoni, 2005. "Do Trade Union Leaders Violate Subjective Expected Utility? Some Insights From Experimental Data," Theory and Decision, Springer, vol. 59(3), pages 207-253, November.
    4. Cohen, Michele & Jaffray, Jean-Yves & Said, Tanios, 1987. "Experimental comparison of individual behavior under risk and under uncertainty for gains and for losses," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 1-22, February.
    5. Hogarth, Robin M & Kunreuther, Howard, 1989. " Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
    6. Curley, Shawn P. & Yates, J. Frank, 1985. "The center and range of the probability interval as factors affecting ambiguity preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 36(2), pages 273-287, October.
    7. Sherman, Roger, 1974. "The Psychological Difference Between Ambiguity and Risk," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 166-69, February.
    8. Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
    9. W. Viscusi & Harrell Chesson, 1999. "Hopes and Fears: the Conflicting Effects of Risk Ambiguity," Theory and Decision, Springer, vol. 47(2), pages 157-184, October.
    10. Budescu, David V. & Kuhn, Kristine M. & Kramer, Karen M. & Johnson, Timothy R., 2002. "Modeling certainty equivalents for imprecise gambles," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(2), pages 748-768, July.
    11. Fox, Craig R & Tversky, Amos, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 585-603, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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

    Cited by:
    1. Théodora Dupont-Courtade, 2012. "Insurance demand under ambiguity and conflict for extreme risks : Evidence from a large representative survey," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00718642, HAL.
    2. Heinrich, Tobias, 2013. "Endogenous negative stereotypes: A similarity-based approach," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 45-54.
    3. Feduzi, Alberto & Runde, Jochen, 2011. "The uncertain foundations of the welfare state," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 613-627.
    4. Huang, Rachel J. & Huang, Yi-Chieh & Tzeng, Larry Y., 2013. "Insurance bargaining under ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 812-820.
    5. Matthias Lang & Achim Wambach, 2010. "The fog of fraud – mitigating fraud by strategic ambiguity," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_24, Max Planck Institute for Research on Collective Goods.
    6. Thibault Gajdos & Jean-Christophe Vergnaud, 2013. "Decisions with conflicting and imprecise information," Social Choice and Welfare, Springer, vol. 41(2), pages 427-452, July.
    7. Keck, Steffen & Diecidue, Enrico & Budescu, David V., 2014. "Group decisions under ambiguity: Convergence to neutrality," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 60-71.
    8. Anne Stenger & Stéphane Couture & Laure Cabantous & Marielle Brunette, 2009. "Assurance, intervention publique et ambiguïté : une étude expérimentale auprès de propriétaires forestiers privés," Économie et Prévision, Programme National Persée, vol. 190(4), pages 123-134.
    9. Christian Gollier, 2008. "Liquidité, incertitude et crise," Revue d'Économie Financière, Programme National Persée, vol. 7(1), pages 129-133.
    10. Véronique Le Bihan & Sophie Pardo, 2010. "Les limites de la couverture des risques en aquaculture : le cas des conchyliculteurs en France," Working Papers hal-00527115, HAL.
    11. Alpaslan Akay & Peter Martinsson & Haileselassie Medhin & Stefan Trautmann, 2012. "Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia," Theory and Decision, Springer, vol. 73(3), pages 453-464, September.
    12. Fairley, Kim & Sanfey, Alan & Vyrastekova, Jana & Weitzel, Utz, 2012. "Social risk and ambiguity in the trust game," MPRA Paper 42302, University Library of Munich, Germany.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kap:theord:v:62:y:2007:i:3:p:219-240. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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