Learning About an Infrequent Event: Evidence from Flood Insurance Take-Up in the US

43 Pages Posted: 30 Nov 2017

See all articles by Justin Gallagher

Justin Gallagher

Case Western Reserve University - Weatherhead School of Management

Date Written: October 31, 2013

Abstract

I examine the learning process that economic agents use to update their expectation of an uncertain and infrequently observed event. I use a new nation-wide panel dataset of large regional floods and flood insurance policies to show that insurance take-up spikes the year after a flood and then steadily declines to baseline. Residents in non-flooded communities in the same television media market increase take-up at one-third the rate of flooded communities. I find that insurance take-up is most consistent with a Bayesian learning model that allows for forgetting or incomplete information about past floods.

JEL Classification: D03, D14, D81, Q54

Suggested Citation

Gallagher, Justin, Learning About an Infrequent Event: Evidence from Flood Insurance Take-Up in the US (October 31, 2013). Available at SSRN: https://ssrn.com/abstract=3078097 or http://dx.doi.org/10.2139/ssrn.3078097

Justin Gallagher (Contact Author)

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States

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