Mental Accounting, Access Motives, and Overinsurance

Abstract

I explore the potential of an alternative insurance motive, the access motive, to better understand attitudes toward modest-risk insurance. I derive the value of partial insurance based on the access motive and show how it critically depends on the way in which the insurer pays benefits. I argue that people's tendency to perform mental accounting makes the access motive relevant for understanding the popularity of insurance against modest risks such as warranties and the avoidance of deductibles. It helps to explain several empirical regularities that are difficult to reconcile within existing models.

Keywords: Extended Warranty, Deductibles, Insurance Demand, Mental Accounting, Access Motive

JEL Classification: D11, D14, D81, G22