Uncertainty aversion in a simple insurance model
A simple insurance model is considered where the distribution of accident probabilities in the population is known, but where the actual probability of each policyholder is unknown to both insurers and the policyholder himself. It is shown that if policyholders are uncertainty averse, deductibles are distorted downwards. A complete view of insurance in such circumstances need thus consider trade in uncertainty as well as risk.
Volume (Year): 12 (1999)
Issue (Month): 1 (Spring)
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