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Non-Expected Utility and The Robustness of the Classical Insurance Paradigm

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  • Mark J. Machina

    (Department of Economics, University of California-San Diego, 92093-0508 La Jolla, California, USA)

Abstract

This paper uses the tools and techniques of generalized expected utility analysis to explore the robustness of some of the classical basic results in insurance theory to departures from the expected utility hypothesis on agents' risk preferences. The areas explored consist of individual demand for coinsurance and deductible insurance, the structure of Pareto-efficient bilateral insurance contracts, the structure of Pareto-efficient multilateral risk-sharing agreements, and self-insurance and self-protection. Most, though not all, of the basic results in this area are found to be quite robust to dropping the expected utility hypothesis. The Geneva Papers on Risk and Insurance Theory (1995) 20, 9–50. doi:10.1007/BF01098956

Suggested Citation

  • Mark J. Machina, 1995. "Non-Expected Utility and The Robustness of the Classical Insurance Paradigm," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 20(1), pages 9-50, June.
    • Handle: RePEc:pal:genrir:v:20:y:1995:i:1:p:9-50
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