Insurance decisions under nonperformance risk and ambiguity

Timo R. Lambregts*, Paul van Bruggen, Han Bleichrodt

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)
7 Downloads (Pure)

Abstract

An important societal problem is that people underinsure against risks that are unlikely or occur in the far future, such as natural disasters and long-term care needs. One explanation is that uncertainty about the risk of non-reimbursement induces ambiguity averse and risk prudent decision makers to take out less insurance. We set up an insurance experiment to test this explanation. Consistent with the theoretical predictions, we find that the demand for insurance is lower when the nonperformance risk is ambiguous than when it is known and when decision makers are risk prudent. We cannot attribute the lower take-up of insurance to our measure of ambiguity aversion, probably because ambiguity attitudes are richer than aversion alone.

Original languageEnglish
Pages (from-to)229-253
Number of pages25
JournalJournal of Risk and Uncertainty
Volume63
Issue number3
DOIs
Publication statusPublished - 26 Nov 2021

Bibliographical note

JEL Classification: C91, D81

Acknowledgements:
We thank Aurélien Baillon for his help in designing our study, Alice Havrileck for her assistance in executing the experiment and David Dicks, Richard Peter, Erik Schut, participants of the 46 seminar of the European Group of Risk and Insurance Economists, the 11 lowlands Health Economics Study Group and the Smarter Choices for Better Health symposium and an anonymous referee for their helpful comments on previous versions of this paper. Financial support from Erasmus University Rotterdam through the Research Excellence Initiative 2015 is gratefully acknowledged. th th

Publisher Copyright:
© 2021, The Author(s).

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