Availability Heuristic and Gambler's Fallacy over Time in a Natural Disaster Insurance Choice Setting

30 Pages Posted: 20 Jun 2016

See all articles by Haitao Yin

Haitao Yin

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Jingqiu Chen

Shanghai Jiao Tong University (SJTU)

Howard Kunreuther

National Bureau of Economic Research (NBER); University of Pennsylvania - Wharton Risk Management and Decision Processes Center

Erwann Michel-Kerjan

University of Pennsylvania - The Wharton School - Center for Risk Management

Date Written: June 20, 2016

Abstract

We carry out a repeated game of demand for typhoon insurance in China to study how the availability heuristic and gambler’s fallacy affect that demand in both short term and long terms. We find that after people experience the first typhoon in the experiment, the availability heuristic dominates their demand for insurance in the short term. Those who experience additional typhoons are more strongly influenced by the gambler’s fallacy though. Females are more likely to be susceptible to the availability heuristic and males to the gambler’s fallacy. We also compared our findings to those of Kunreuther and Michel-Kerjan (2015) in the U.S. and found that respondents from both nations exhibit similar behavioral pattern, except that Chinese seem more susceptible to the influence of availability heuristic. Our analysis reveals that the market fluctuation caused by availability heuristic and gambler’s fallacy is a short term phenomenon. Measures to mediate short-term fluctuations are discussed.

Keywords: Experiment in China, Availability Heuristic, Gambler's Fallacy, Natural Disaster, Insurance Demand

JEL Classification: D03, D22, D54

Suggested Citation

Yin, Haitao and Chen, Jingqiu and Kunreuther, Howard C. and Kunreuther, Howard C. and Michel-Kerjan, Erwann, Availability Heuristic and Gambler's Fallacy over Time in a Natural Disaster Insurance Choice Setting (June 20, 2016). Available at SSRN: https://ssrn.com/abstract=2798371 or http://dx.doi.org/10.2139/ssrn.2798371

Haitao Yin

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Jingqiu Chen (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

800 Dongchuan Rd
Minhang, Shanghai 200240
China

Howard C. Kunreuther

University of Pennsylvania - Wharton Risk Management and Decision Processes Center ( email )

3819 Chestnut Street
Suite 130
Philadelphia, PA 19104
United States
215-898-4589 (Phone)

National Bureau of Economic Research (NBER)

Erwann Michel-Kerjan

University of Pennsylvania - The Wharton School - Center for Risk Management ( email )

Jon M Huntsman Hall, Suite 500
3730 Walnut Street
Philadelphia, PA 19104-6365
United States

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