Buying Insurance for Disaster-Type Risks: Experimental Evidence
This paper presents a series of experiments that confront subjects with low probability, high loss situations. A rich parameter set is examined and we find subjects respond to low probability, high loss risks in predictable ways. As loss events become more likely, or loss amounts get larger, or the cost of insurance falls, subjects are more likely to buy indemnifying insurance, even for the class of low probability risks that usually presents problems for standard expected utility theory. A novel application of Cameron's method to estimate willingness to pay from dichotomous choice responses allows us to estimate willingness to pay for insurance. We do not observe the bimodal distribution of bids found in other studies of similar risk situations. Copyright 2000 by Kluwer Academic Publishers
Volume (Year): 20 (2000)
Issue (Month): 3 (May)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/11166/PS2|
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.:
- Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-187, May.
- Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
- Camerer, Colin & Kunreuther, Howard, 1993. "Making Decisions about Liability and Insurance: Editors' Comments," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 5-15, August.
- Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
- Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-1269, December.
- Charles T. Clotfelter & Philip J. Cook, 1991. "The "Gambler's Fallacy" in Lottery Play," NBER Working Papers 3769, National Bureau of Economic Research, Inc.
- McClelland, Gary H & Schulze, William D & Coursey, Don L, 1993. "Insurance for Low-Probability Hazards: A Bimodal Response to Unlikely Events," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 95-116, August.
When requesting a correction, please mention this item's handle: RePEc:kap:jrisku:v:20:y:2000:i:3:p:271-89. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.