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Goals and Plans in Protective Decision Making

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Author Info
David H. Krantz
Howard Kunreuther
Abstract

Protective decisions are often puzzling. Among other anomalies, people insure against non-catastrophic events, underinsure against catastrophic risks, and allow extraneous factors to influence insurance purchases and other protective decisions. Neither expected utility theory nor prospect theory can explain these anomalies satisfactorily. We propose a constructed-choice model for general decision making. The model departs from utility theory and prospect theory in its treatment of multiple goals and it suggests several different ways in which context can affect choice. To apply this model to the above anomalies, we consider many different insurance-related goals, organized in a taxonomy, and we consider the effects of context on goals, resources, plans and decision rules. The paper concludes by suggesting some prescriptions for improving individual decision making with respect to protective measures.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12446.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12446

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Find related papers by JEL classification:
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chapman, Gretchen B. & Johnson, Eric J., 1995. "Preference Reversals in Monetary and Life Expectancy Evaluations," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(3), pages 300-317, June. [Downloadable!] (restricted)
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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  4. Hsee, Christopher K & Kunreuther, Howard C, 2000. " The Affection Effect in Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 141-59, March. [Downloadable!] (restricted)
  5. Matthew Rabin., 2000. "Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion," Economics Working Papers E00-287, University of California at Berkeley. [Downloadable!]
  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  7. Gerard Debreu, 1959. "Topological Methods in Cardinal Utility Theory," Cowles Foundation Discussion Papers 76, Cowles Foundation, Yale University. [Downloadable!]
  8. Matthew Rabin, 2000. "Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion," Department of Economics, Working Paper Series 1025, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  9. Hogarth, Robin M & Kunreuther, Howard, 1995. "Decision Making under Ignorance: Arguing with Yourself," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 15-36, January.
  10. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Greg Hannsgen, 2007. "Are the Costs of the Business Cycle 'Trivially Small'?," Economics Working Paper Archive wp_492, Levy Economics Institute, The. [Downloadable!]
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