Mossin's Theorem Without the Expected-Utility Framework

18 Pages Posted: 19 Oct 2018 Last revised: 19 Aug 2019

See all articles by Liang Hong

Liang Hong

The University of Texas at Dallas

Date Written: June 2, 2019

Abstract

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

Suggested Citation

Hong, Liang, Mossin's Theorem Without the Expected-Utility Framework (June 2, 2019). Available at SSRN: https://ssrn.com/abstract=3256462 or http://dx.doi.org/10.2139/ssrn.3256462

Liang Hong (Contact Author)

The University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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