Mutual Sharing or Insurance? An Experimental Study of Decisions at Various Levels of Uncertainty
Decision theory assumes that agents making choices assign subjective probabilities to outcomes, also at choices where information on probabilities is obviously absent. Yet, Skogh and Wu (2005) show that risk averse agents may gain by risk sharing also at unknown (and unassigned) probabilities of losses, as long as the agents presume that the risks are equal. Their Restated diversification theorem is tested by an experiment where the players may lose half their endowments in each of five risky rounds. The probability of loss, and the information about this probability, varies with the rounds. The result supports the hypothesis of beneficial risk sharing at genuine uncertainty. Moreover, the result tentatively supports an evolutionary theory of the development of the insurance industry starting with mutual pooling at uncertainty, turning into insurance priced ex ante when actuarial information is available.
|Date of creation:||12 Nov 2006|
|Contact details of provider:|| Postal: Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University, SE 351 95 Växjö, Sweden|
Phone: +46 470 70 87 64
Web page: http://lnu.se/research-groups/cafo?l=en
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:vxcafo:2006_012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andreas Mångs)
If references are entirely missing, you can add them using this form.