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Risk Aversion, Loss Aversion, and the Demand for Insurance

Author

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  • Louis Eeckhoudt

    (Department of Economics and Quantitative Methods, IÉSEG School of Management, 3 rue de la Digue, 59000 Lille, France)

  • Anna Maria Fiori

    (Department of Statistics and Quantitative Methods, University of Milano-Bicocca, Via Bicocca degli Arcimboldi 8, 20126 Milano, Italy)

  • Emanuela Rosazza Gianin

    (Department of Statistics and Quantitative Methods, University of Milano-Bicocca, Via Bicocca degli Arcimboldi 8, 20126 Milano, Italy)

Abstract

In this paper we analyze insurance demand when the utility function depends both upon final wealth and the level of losses or gains relative to a reference point. Besides some comparative statics results, we discuss the links with first-order risk aversion, with the Omega measure, and with a tendency to over-insure modest risks that has been been extensively documented in real insurance markets.

Suggested Citation

  • Louis Eeckhoudt & Anna Maria Fiori & Emanuela Rosazza Gianin, 2018. "Risk Aversion, Loss Aversion, and the Demand for Insurance," Risks, MDPI, vol. 6(2), pages 1-19, May.
    • Handle: RePEc:gam:jrisks:v:6:y:2018:i:2:p:60-:d:149051
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    References listed on IDEAS

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    3. Jiakun Zheng, 2020. "Optimal insurance design under narrow framing," Post-Print hal-04227370, HAL.
    4. Sunday Stephen AJEMUNIGBOHUN & Sulaiman Ademola Oreshile, 2019. "Risk Aversion And Motor Insurance Demand: Empirical Evidence From Nigeria," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 2(47), pages 211-222, December.
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    6. Eling, Martin & Ghavibazoo, Omid & Hanewald, Katja, 2021. "Willingness to take financial risks and insurance holdings: A European survey," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).

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