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The Valuation of Insurance under Uncertainty: Does Information about Probability Matter?

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  • Carmela Di Mauro

    (Dipartimento di Economia Politica, Universit� della Calabria, Arcavacata di Rende, Italy)

  • Anna Maffioletti

    ([1] 2Dipartimento di Economia Politica, Universit� di Torino, Italy [2] 3School of Economic Studies, University of Hull, UK)

Abstract

In a laboratory experiment we test the hypothesis that consumers' valuation of insurance is sensitive to the amount of information available on the probability of a potential loss. In order to test this hypothesis we simulate a market in which we elicit individuals' willingness to pay to insure against a loss characterised either by known or else vague probabilities. We use two distinct treatments by providing subjects with different information over the vague probabilities of loss. In general we find that uncertainty about probabilities has a weak impact on consumers' valuation of insurance. However, additional information about probabilities tends to marginally increase the price individuals are willing to pay to insure themselves. Implications for the insurance market are derived. The Geneva Papers on Risk and Insurance Theory (2001) 26, 195–224. doi:10.1023/A:1015277619421

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.

Volume (Year): 26 (2001)
Issue (Month): 3 (December)
Pages: 195-224

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Handle: RePEc:pal:genrir:v:26:y:2001:i:3:p:195-224

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Cited by:
  1. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
  2. 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.
  3. Théodora Dupont-Courtade, 2012. "Insurance demand under ambiguity and conflict for extreme risks: Evidence from a large representative survey," Documents de travail du Centre d'Economie de la Sorbonne 12020, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  4. Peter Wakker & Danielle Timmermans & Irma Machielse, 2007. "The effects of statistical information on risk ambiguity attitudes, and on rational insurance decisions," Natural Field Experiments 00338, The Field Experiments Website.
  5. Lesourd, Jean-Baptiste & Schilizzi, Steven, 2011. "Captive insurance companies and the management of non-conventional corporate risks," Working Papers 100886, University of Western Australia, School of Agricultural and Resource Economics.
  6. Andrea Morone & Ozlem Ozdemir, 2005. "Measuring the Degree of Ambiguity about Probability: Experimental Evidence," Papers on Strategic Interaction 2005-40, Max Planck Institute of Economics, Strategic Interaction Group.
  7. Théodora Dupont-Courtade, 2012. "Insurance demand under ambiguity and conflict for extreme risks : Evidence from a large representative survey," Post-Print halshs-00718642, HAL.
  8. 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.

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