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Is imprecise knowledge better than conflicting expertise? Evidence from insurers’ decisions in the United States

  • Laure Cabantous
  • Denis Hilton
  • Howard Kunreuther
  • Erwann Michel-Kerjan

    ()

Testing whether risk professionals (here insurers) behave differently under risk and ambiguity when they cover catastrophic risks (floods and earthquakes) and non-catastrophic risks (fires), this paper reports the results of the first field experiment in the United States designed to distinguish two sources of ambiguity: imprecise ambiguity (outside experts agree on a range of probability, but not on any point estimate) versus conflict ambiguity (each expert group provides precise probability estimates which differ from one group to another). Insurers charge higher premiums when faced with ambiguity than when the probability of a loss is well specified. Furthermore they charge more for conflict ambiguity than imprecise ambiguity for flood and hurricane hazards, but less so in the case of fire. The source of ambiguity also impacts causal inferences insurers make to reduce their uncertainty.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s11166-011-9117-1
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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 42 (2011)
Issue (Month): 3 (June)
Pages: 211-232

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Handle: RePEc:kap:jrisku:v:42:y:2011:i:3:p:211-232
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100299

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