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The Impact of Ambiguity Prudence on Insurance and Prevention

Listed author(s):
  • Loïc Berger

This paper derives simple and plausible conditions under which ambiguityaversion raises the demand for (self-) insurance and self-protection when theeffort is furnished one period before the realization of the uncertainty. Unlikethe recent contribution made by [Alary D. Gollier C. Treich N. 2013. Theeffect of ambiguity aversion on insurance and self-protection. The EconomicJournal], I show that in the most usual situations in which the level of ambiguitydoes not increase with the level of effort, a clear and positive answer canbe given to the question: Does ambiguity aversion raise the level of effort?

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/156152/1/2014-08-BERGER-theimpact.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2014-08.

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Length: 20 p.
Date of creation: Feb 2014
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/156152
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Web page: http://difusion.ulb.ac.be

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  1. Gierlinger, Johannes & Gollier, Christian, 2008. "Socially Efficient Discounting under Ambiguity Aversion," IDEI Working Papers 561, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
  3. Fabio Maccheroni & Massimo Marinacci & Doriana Ruffino, 2013. "Alpha as Ambiguity: Robust Mean‐Variance Portfolio Analysis," Econometrica, Econometric Society, vol. 81(3), pages 1075-1113, 05.
  4. Menegatti, Mario, 2009. "Optimal prevention and prudence in a two-period model," Mathematical Social Sciences, Elsevier, vol. 58(3), pages 393-397, November.
  5. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
  6. Berger, Loïc, 2014. "Precautionary saving and the notion of ambiguity prudence," Economics Letters, Elsevier, vol. 123(2), pages 248-251.
  7. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," The Journal of Business, University of Chicago Press, vol. 59(4), pages 225-250, October.
  8. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 989-994, November.
  9. Loïc Berger, 2011. "Smooth Ambiguity Aversion in the Small and in the Large," Working Papers ECARES ECARES 2011-020, ULB -- Universite Libre de Bruxelles.
  10. David Alary & Christian Gollier & Nicolas Treich, 2013. "The Effect of Ambiguity Aversion on Insurance and Self‐protection," Economic Journal, Royal Economic Society, vol. 123(12), pages 1188-1202, December.
  11. 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.
  12. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  13. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
  14. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
  15. Arthur Snow, 2011. "Ambiguity aversion and the propensities for self-insurance and self-protection," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 27-43, February.
  16. Ho, Joanna L Y & Keller, L Robin & Keltyka, Pamela, 2002. "Effects of Outcome and Probabilistic Ambiguity on Managerial Choices," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 47-74, January.
  17. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
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