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Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence

Author

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  • Ozlem Ozdemir

    () (Yeditepe University)

Abstract

This experimental study, first, compares the individual valuations of two risk reduction mechanisms: self-insurance and self-protection. Second, it investigates these valuations when the loss amount is ambiguous, and compare these values with valuations when loss amounts are known. results confirm that there exists no "framing effect" due to the two risk reduction mechanisms. Ambiguity in the loss amount has a weak impact on the valuation, and using different representations of ambiguity does not change the valuation. Moreover, the mean ratios of ambiguous to risky bids are greater than one for low loss amounts indicating ambiguity aversion. These ratios are not significantly different from one for high loss amounts regardless of the probability of loss levels. Finally, 28 percent of the sample behaved consistent with the predictions of "anchoring and adjustment", while only 6 percent supported the "maximin" predictions.

Suggested Citation

  • Ozlem Ozdemir, 2007. "Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence," Jena Economic Research Papers 2007-034, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2007-034
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    2. François Pannequin & Anne Corcos & Claude Montmarquette, 2016. "Behavioral foundations of the substitutability between insurance and self-insurance: An experimental study," CIRANO Working Papers 2016s-12, CIRANO.
    3. Marielle Brunette & Laure Cabantous & Stéphane Couture & Anne Stenger, 2008. "Insurance Demand for Disaster-type Risks and the Separation of Attitudes toward Risk and Ambiguity: an Experimental Study," Working Papers - Cahiers du LEF 2008-05, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.

    More about this item

    Keywords

    self-insurance; self-protection; risk; uncertainty;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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