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Application Of Prospect Theory To Microinsurance Based On Contingent Valuation Approach For Poor Population In Ukraine

Author

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  • Aram Shirinyan

    (Department of Finance, National University of Food Technologies (Kyiv) & Research and Education Center of the National Academy of Sciences of Ukraine)

  • Lada Shirinyan

    (Department of Finance, Institute of Economics and Management, National University of Food Technologies)

Abstract

This paper takes a behavioral economics approach and empirically tests if Prospect Theory can explain behavior of low-income people in Ukraine. The study uses the contingent valuation method due to direct inquiry of low-income people, in a survey, how much they would be willing to pay for insurance and to get back in case of an insurance event arising. This paper provides suggestive evidence that according to Prospect Theory poor individuals make decisions based on expectations of loss or gain from their current relative position and are more sensitive to losses compared to gains. The work also answers the question concerning the microinsurance: can microinsurance be a business proposition and provide value for low income people at the same time? The results lead to the power-law distribution of potential clients according to the price of a microinsurance service. The obtained correlations help to formulate strategies to tap the low-income market in the country.

Suggested Citation

  • Aram Shirinyan & Lada Shirinyan, 2023. "Application Of Prospect Theory To Microinsurance Based On Contingent Valuation Approach For Poor Population In Ukraine," Ekonomski pregled, Hrvatsko društvo ekonomista (Croatian Society of Economists), vol. 74(2), pages 300-332.
    • Handle: RePEc:hde:epregl:v:74:y:2023:i:2:p:300-332
    DOI: 10.32910/ep.74.2.6
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    More about this item

    Keywords

    microinsurance; prospect theory; contingent valuation; low-income people; subjective utility;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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