Impact of Self-Protection and Self-Insurance on Individual Response to Risk (The)
We develop four experimental markets to examine how individuals respond to risk: self-protection and self-insurance in both private and collective auctions. First, we find evidence that the mechanism used to reduce risk is important. Results indicate that the upper and lower bounds on value were elicited by the private self-protection and the collective self-insurance markets. Second, the robustness of these results declined with low probability lotteries. We find further evidence that individuals overestimate the impact of low probability events. Overestimation decreased, however, with repeated market exposure. Third, the four markets induced rapid value formation. Usually only one or two additional market trials were necessary before an individual's perception and valuation of reduced risk stabilized.
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|Date of creation:||01 Jan 1990|
|Publication status:||Published in Journal of Risk and Uncertainty 1990, vol. 3, pp. 192-204|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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