Why People Buy Insurance: A Modern Answer to an Old Question

13 Pages Posted: 7 Apr 2019

See all articles by Markus Fels

Markus Fels

University of Dortmund - Department of Economics

Date Written: March 14, 2019

Abstract

In this essay, I revisit the question of which motive underlies insurance demand. I draw on the literature of state-dependent utility and on the literature of imperfectly divisible consumption to argue that the general purpose of insurance is not a risk transfer, but meeting a conditional need. I discuss how this understanding of insurance extends the traditional view of insurance and I show how this extension has implications for our discipline’s research agenda and policy advice.

Keywords: Insurance, Risk Aversion, State Dependence, Divisibility of Consumption, Risk Preferences

JEL Classification: D01, D14, D81, G22

Suggested Citation

Fels, Markus, Why People Buy Insurance: A Modern Answer to an Old Question (March 14, 2019). Available at SSRN: https://ssrn.com/abstract=3352604 or http://dx.doi.org/10.2139/ssrn.3352604

Markus Fels (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany

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