Mossin's Theorem Without the Expected-Utility Framework
18 Pages Posted: 19 Oct 2018 Last revised: 19 Aug 2019
Date Written: June 2, 2019
Mossin's Theorem ("full insurance with a fair premium and partial insurance with an unfair premium") is re-examined without the expected-utility paradigm where risk-aversion is defined in terms of mean-preserving spreads. Under the same assumption, two key results are known to hold for coinsurance: (1) Mossin's Theorem needs to be modified, and (2) the culprit for invalidating Mossin's Theorem is not the lack of an expected-utility framework, but a lack of sufficient ``smoothness'' of preferences in non-expected utility models. This article establishes that the first result holds for any constrained class of insurance contracts, and that the second result is not valid for deductible insurance and upper-limit insurance.
Keywords: optimal insurance demand; non-expected-utility framework; robustness; coinsurance; deductible insurance; upper-limit insurance
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