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Black Swan Protection: an Experimental Investigation

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Author Info

  • Ozlem Ozdemir

    ()
    (Middle East Technical University, Department of Business Administration, Ankara, Turkey)

  • Andrea Morone

    ()
    (Università degli Studi di Bari, Aldo Moro Dipartimento di Studi Aziendali e Giusprivatistici, Bari, Italy and LEE-Economics Department, Universitat Jaume I, Castellón, Spain)

Abstract

This experimental study investigates insurance decisions in low-probability, high-loss risk situations. Results indicate that subjects consider the probability of loss (loss size) when they make buying decisions (paying decisions). Most individuals are risk averse with no specific threshold probability.

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File URL: http://www.doctreballeco.uji.es/wpficheros/ozdemir_morone_2012.pdf
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Bibliographic Info

Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2012/12.

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Length: 25 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:jau:wpaper:2012/12

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Keywords: Black swan; Risk; Insurance; Low probability; High loss; Experiment;

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References

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  1. Morone, Andrea & Schmidt, Ulrich, 2003. "An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data," Hannover Economic Papers (HEP) dp-280, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. William T. Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Prospect Theory in Choice and Pricing Tasks," University of Oregon Economics Department Working Papers 2002-02, University of Oregon Economics Department, revised 20 Aug 2007.
  3. John D. Hey & Andrea Morone & Ulrich Schmidt, 2007. "Noise and Bias in Eliciting Preferences," Kiel Working Papers 1386, Kiel Institute for the World Economy.
  4. Andrea Morone, 2005. "Comparison of Mean-Variance Theory and Expected-Utility Theory through a Laboratory Experiment," Papers on Strategic Interaction 2005-20, Max Planck Institute of Economics, Strategic Interaction Group.
  5. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding with and without Payoff Externalities - An Internet Experiment," Working Papers 0420, University of Heidelberg, Department of Economics, revised Apr 2005.
  6. Seidl, Christian & Traub, Stefan & Morone, Andrea, 2005. "Relative Deprivation, Personal Income Satisfaction, and Average Well-being under Different Income Distributions," Working Paper Series RP2005/04, World Institute for Development Economic Research (UNU-WIDER).
  7. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  8. Camacho-Cuena, Eva & Seidl, Christian & Morone, Andrea, 2005. "Comparing preference reversal for general lotteries and income distributions," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 682-710, October.
  9. Meroz, Yael & Morone, Andrea & Morone, Piergiuseppe, 2009. "Eliciting environmental preferences of Ghanaians in the laboratory: An incentive-compatible experiment," MPRA Paper 17107, University Library of Munich, Germany.
  10. Morone, Andrea & Morone, Piergiuseppe, 2012. "Are small groups expected utility?," MPRA Paper 38198, University Library of Munich, Germany.
  11. Andrea Morone & Ozlem Ozdemir, 2012. "Displaying Uncertain Information About Probability: Experimental Evidence," Bulletin of Economic Research, Wiley Blackwell, vol. 64(2), pages 157-171, 04.
  12. John Hey & Jinkwon Lee, 2005. "Do Subjects Separate (or Are They Sophisticated)?," Experimental Economics, Springer, vol. 8(3), pages 233-265, September.
  13. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September.
  14. Carmela Di Mauro & Anna Maffioletti, 2004. "Attitudes to risk and attitudes to uncertainty: experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 357-372.
  15. Morone, Andrea, 2009. "On Price Data Elicitation: a Laboratory Investigation," MPRA Paper 18358, University Library of Munich, Germany.
  16. Philip Ganderton & David Brookshire & Michael McKee & Steve Stewart & Hale Thurston, 2000. "Buying Insurance for Disaster-Type Risks: Experimental Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 271-289, May.
  17. Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, vol. 28(3), pages 217-235, 05.
  18. Seidl, Christian, 2002. " Preference Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 621-55, December.
  19. Susan K. Laury, 2006. "Pay One or Pay All: Random Selection of One Choice for Payment," Experimental Economics Center Working Paper Series 2006-24, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
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