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Experimental Markets for Insurance

Author

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  • Camerer, Colin
  • Kunreuther, Howard

Abstract

This article extends the large amount of research on double-oral auction markets to hazards that produce only losses. We report results from a series of experiments in which subjects endowed with low-probability losses can pay a premium for insurance protection. Insurers specify the price at which they are willing to assume the risk of a loss. Insurance prices approach expected value for a large range of probabilities and loss amounts. Subjects seem to realize losses are statistically independent. Prices are not affected by ambiguity about the probability of loss. Copyright 1989 by Kluwer Academic Publishers

Suggested Citation

  • Camerer, Colin & Kunreuther, Howard, 1989. "Experimental Markets for Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 265-299, September.
  • Handle: RePEc:kap:jrisku:v:2:y:1989:i:3:p:265-99
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    Citations

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    Cited by:

    1. Marquis, M Susan & Holmer, Martin R, 1996. "Alternative Models of Choice under Uncertainty and Demand for Health Insurance," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 421-427, August.
    2. Hill, Ruth Vargas & Viceisza, Angelino, 2010. "An experiment on the impact of weather shocks and insurance on risky investment," IFPRI discussion papers 974, International Food Policy Research Institute (IFPRI).
    3. Yacine Aït-Sahalia, 2001. "Variable Selection for Portfolio Choice," Journal of Finance, American Finance Association, vol. 56(4), pages 1297-1351, August.
    4. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    5. Aloysius, John A., 2005. "Ambiguity aversion and the equity premium puzzle: A re-examination of experimental data on repeated gambles," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(5), pages 635-655, October.
    6. Lin Zhao & Sweder van Wijnbergen, 2017. "Decision-making in incomplete markets with ambiguity—a case study of a gas field acquisition," Quantitative Finance, Taylor & Francis Journals, vol. 17(11), pages 1759-1782, November.
    7. Carmela Di Mauro & Anna Maffioletti, 2004. "Attitudes to risk and attitudes to uncertainty: experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 357-372.
    8. Ozlem Ozdemir, 2007. "Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence," Jena Economic Research Papers 2007-034, Friedrich-Schiller-University Jena.
    9. Ali Ahmed & Göran Skogh, 2006. "Choices at various levels of uncertainty: An experimental test of the restated diversification theorem," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 183-196, December.
    10. Carmela Mauro, 2008. "Uncertainty Aversion Vs. Competence: An Experimental Market Study," Theory and Decision, Springer, vol. 64(2), pages 301-331, March.
    11. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    12. Anna Maffioletti & Ulrich Schmidt & Carsten Schröder, 2009. "The effect of elicitation methods on ambiguity aversion: an experimental investigation," Economics Bulletin, AccessEcon, vol. 29(2), pages 638-643.
    13. Martin G. Kocher & Stefan T. Trautmann, 2013. "Selection Into Auctions For Risky And Ambiguous Prospects," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 882-895, January.
    14. Loehman, Edna, 1998. "Testing risk aversion and nonexpected utility theories," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 285-302, January.
    15. Vickie Bajtelsmit & Jennifer Coats & Paul Thistle, 2015. "The effect of ambiguity on risk management choices: An experimental study," Journal of Risk and Uncertainty, Springer, vol. 50(3), pages 249-280, June.
    16. Füllbrunn, Sascha & Rau, Holger A. & Weitzel, Utz, 2014. "Does ambiguity aversion survive in experimental asset markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 810-826.
    17. Keser, Claudia & Montmarquette, Claude, 2008. "Voluntary contributions to reduce expected public losses," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 477-491, June.
    18. Füllbrunn, Sascha & Rau, Holger & Weitzel, Utz, 2013. "Do ambiguity effects survive in experimental asset markets?," MPRA Paper 44700, University Library of Munich, Germany.
    19. W.J. Wouter Botzen & Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Divergence between individual perceptions and objective indicators of tail risks: Evidence from floodplain residents in New York City," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(4), pages 365-385, July.
    20. Baghestanian, Sascha & Gortner, Paul J. & van der Weele, Joël J., 2014. "Peer effects and risk sharing in experimental asset markets," SAFE Working Paper Series 67, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    21. : Constantinos Antoniou & Emilios Galariotis & Daniel Read, 2012. "Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts," Working Papers wpn12-01, Warwick Business School, Finance Group.
    22. Ruth Hill & Angelino Viceisza, 2012. "A field experiment on the impact of weather shocks and insurance on risky investment," Experimental Economics, Springer;Economic Science Association, vol. 15(2), pages 341-371, June.
    23. Jean Desrochers & J. Francois Outreville, 2013. "Uncertainty, Ambiguity and Risk Taking: an experimental investigation of consumer behavior and demand for insurance," ICER Working Papers 10-2013, ICER - International Centre for Economic Research.
    24. W. Viscusi & Harrell Chesson, 1999. "Hopes and Fears: the Conflicting Effects of Risk Ambiguity," Theory and Decision, Springer, vol. 47(2), pages 157-184, October.

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