A Behavioral Model of Insurance Pricing
AbstractWe develop a model of price competition between insurers where insurers maximize expected profit subject to a solvency constraint. Insurers base prices in part on expected losses, the estimates of which are updated in a Bayesian fashion. We assume that insurers are overconfident—they overestimate the precision of their private signal about expected losses. This leads insurers to overreact to their private signal on expected losses. The consequence is that prices may cycle and that the distribution of price changes may be positively skewed because of the role played by the solvency constraint.
Download InfoIf 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.
Bibliographic InfoArticle provided by Western Risk and Insurance Association in its journal Journal of Insurance Issues.
Volume (Year): 30 (2007)
Issue (Month): 1 ()
Contact details of provider:
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (James Barrese).
If references are entirely missing, you can add them using this form.