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Government Action, Biases in Risk Perception, and Insurance Decisions

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  • W. Kip Viscusi

    (George G. Allen Professor of Economics, Department of Economics, Duke University, 27708-0097 Durham NC)

Abstract

Biases in risk perception potentially have a large effect on insurance and risk-related behavior. The government can alter these perceptions either through informational programs or controlling the risk. Policies that convey a higher risk level generally have the expected effects on insurance and protective actions, whereas efforts that increase the precision of either the government risk information or private beliefs typically have ambiguous effects. In some cases, the structure of how government policies enter the risk-belief function is consequential. Ascertaining the magnitude of the effects, not simply the direction, also is an important issue. For example, misperceptions have a dramatic effect on the tradeoffs between compensating differentials and the size of the loss but a negligible effect on the tradeoff between compensating differentials and the magnitude of the probability. The Geneva Papers on Risk and Insurance Theory (1995) 20, 93–110. doi:10.1007/BF01098960

Suggested Citation

  • W. Kip Viscusi, 1995. "Government Action, Biases in Risk Perception, and Insurance Decisions," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 20(1), pages 93-110, June.
    • Handle: RePEc:pal:genrir:v:20:y:1995:i:1:p:93-110
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    Cited by:

    1. Elisabeth Gsottbauer & Jeroen Bergh, 2011. "Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 263-304, June.
    2. Chen Li & Zhihua Li & Peter Wakker, 2014. "If nudge cannot be applied: a litmus test of the readers’ stance on paternalism," Theory and Decision, Springer, vol. 76(3), pages 297-315, March.
    3. Nathalie Etchart-Vincent, 2009. "Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses," Journal of Risk and Uncertainty, Springer, vol. 39(1), pages 45-63, August.
    4. Dewar, Diane M., 1998. "Do those with more formal education have better health insurance opportunities?," Economics of Education Review, Elsevier, vol. 17(3), pages 267-277, June.
    5. Wakker, Peter P & Thaler, Richard H & Tversky, Amos, 1997. "Probabilistic Insurance," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 7-28, October.
    6. Stefan Borsky & Hannah Hennighausen, 2022. "Public Flood Risk Mitigation and the Homeowner’s Insurance Demand Response," Land Economics, University of Wisconsin Press, vol. 98(4), pages 537-559.
    7. Klajdi Bregu, 2022. "The effect of overconfidence on insurance demand," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(2), pages 298-326, September.
    8. Aurélien Baillon & Aleli Kraft & Owen O’Donnell & Kim Wilgenburg, 2022. "A behavioral decomposition of willingness to pay for health insurance," Journal of Risk and Uncertainty, Springer, vol. 64(1), pages 43-87, February.
    9. Zhihua Li & Kirsten I. M. Rohde & Peter P. Wakker, 2017. "Improving one’s choices by putting oneself in others’ shoes – An experimental analysis," Journal of Risk and Uncertainty, Springer, vol. 54(1), pages 1-13, February.
    10. Han Bleichrodt & Jason N. Doctor & Yu Gao & Chen Li & Daniella Meeker & Peter P. Wakker, 2019. "Resolving Rabin’s paradox," Journal of Risk and Uncertainty, Springer, vol. 59(3), pages 239-260, December.
    11. Bernard, Carole & Liu, Fangda & Vanduffel, Steven, 2020. "Optimal insurance in the presence of multiple policyholders," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 638-656.
    12. Han Bleichrodt & Jose Luis Pinto & Peter P. Wakker, 2001. "Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility," Management Science, INFORMS, vol. 47(11), pages 1498-1514, November.
    13. Till Grüne-Yanoff & Holger Rosencrantz, 2011. "Beneficial safety decreases," Theory and Decision, Springer, vol. 70(2), pages 195-213, February.
    14. Chen Li, 2017. "Are the poor worse at dealing with ambiguity?," Journal of Risk and Uncertainty, Springer, vol. 54(3), pages 239-268, June.
    15. François Maréchal, 2009. "Prevention of diseases and preventive co-payment rate," Economics Bulletin, AccessEcon, vol. 29(3), pages 2333-2342.
    16. Aurélien Baillon & Han Bleichrodt & Ning Liu & Peter P. Wakker, 2016. "Group decision rules and group rationality under risk," Journal of Risk and Uncertainty, Springer, vol. 52(2), pages 99-116, April.

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