The Impact of Regret on the Demand for Insurance
We examine optimal insurance purchase decisions of individuals that exhibit behavior consistent with Regret Theory. Our model incorporates a utility function that assigns a disutility to outcomes that are "ex post" suboptimal, and predicts that individuals with regret-theoretical preferences adjust away from the extremes of full insurance and no insurance coverage. This prediction holds for both coinsurance and deductible contracts, and can explain the frequently observed preferences for low deductibles in markets for personal insurance. Copyright The Journal of Risk and Insurance, 2004.
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Volume (Year): 71 (2004)
Issue (Month): 4 ()
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