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Behavioral bias and the demand for bicycle and flood insurance

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  • Mark Browne

    ()

  • Christian Knoller

    ()

  • Andreas Richter

    ()

Abstract

With data from an insurer that provides coverage for both a low probability, high consequence (LPHC) risk (the flood peril) and a high probability, low consequence (HPLC) risk (bicycle theft), we investigate behavioral bias in the demand for insurance. Our analysis provides evidence which is consistent with a preference for insurance for HPLC risks over LPHC risks: we find that many more policyholders purchase add-on coverage to their homeowner’s insurance to cover the risk of bicycle theft than to cover the risk of loss due to flooding. In addition, we find mixed evidence on whether policyholders’ insurance coverage decisions are responsive to changes in their risk exposure. We find a strong relationship between wealth and the demand for both types of coverage. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Mark Browne & Christian Knoller & Andreas Richter, 2015. "Behavioral bias and the demand for bicycle and flood insurance," Journal of Risk and Uncertainty, Springer, vol. 50(2), pages 141-160, April.
  • Handle: RePEc:kap:jrisku:v:50:y:2015:i:2:p:141-160
    DOI: 10.1007/s11166-015-9212-9
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Michal W. Krawczyk & Stefan T. Trautmann & Gijs Kuilen, 2017. "Catastrophic risk: social influences on insurance decisions," Theory and Decision, Springer, vol. 82(3), pages 309-326, March.
    2. repec:bla:germec:v:20:y:2019:i:2:p:217-242 is not listed on IDEAS
    3. repec:kap:jrisku:v:55:y:2017:i:1:d:10.1007_s11166-017-9263-1 is not listed on IDEAS
    4. Martin Achtnicht & Daniel Osberghaus, 2019. "The Demand for Index‐Based Flood Insurance in a High‐Income Country," German Economic Review, Verein für Socialpolitik, vol. 20(2), pages 217-242, May.
    5. Renate Lange & Jörg Schiller & Petra Steinorth, 2017. "Demand and Selection Effects in Supplemental Health Insurance in Germany," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(1), pages 5-30, January.

    More about this item

    Keywords

    Decision making under risk; Risk assessment; Insurance demand; D81; D83; D84;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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