Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence
AbstractThis experimental study, first, compares the individual valuations of two risk reduction mechanisms: self-insurance and self-protection. Second, it investigates these valuations when the loss amount is ambiguous, and compare these values with valuations when loss amounts are known. results confirm that there exists no "framing effect" due to the two risk reduction mechanisms. Ambiguity in the loss amount has a weak impact on the valuation, and using different representations of ambiguity does not change the valuation. Moreover, the mean ratios of ambiguous to risky bids are greater than one for low loss amounts indicating ambiguity aversion. These ratios are not significantly different from one for high loss amounts regardless of the probability of loss levels. Finally, 28 percent of the sample behaved consistent with the predictions of "anchoring and adjustment", while only 6 percent supported the "maximin" predictions.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-034.
Date of creation: 06 Jul 2007
Date of revision:
self-insurance; self-protection; risk; uncertainty;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-13 (All new papers)
- NEP-CBE-2007-07-13 (Cognitive & Behavioural Economics)
- NEP-EXP-2007-07-13 (Experimental Economics)
- NEP-IAS-2007-07-13 (Insurance Economics)
- NEP-UPT-2007-07-13 (Utility Models & Prospect Theory)
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