Predicting Insurance Demand from Risk Attitudes

85 Pages Posted: 3 Dec 2019 Last revised: 7 Jun 2023

See all articles by Johannes Gerd Jaspersen

Johannes Gerd Jaspersen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Marc A. Ragin

University of Georgia; University of Georgia - Department of Insurance, Legal Studies, Real Estate

Justin R. Sydnor

University of Wisconsin - Madison

Date Written: November 2019

Abstract

Can measured risk attitudes and associated structural models predict insurance demand? In an experiment (n = 1,730), we elicit measures of utility curvature, probability weighting, loss aversion, and preference for certainty and use them to parameterize seventeen common structural models (e.g., expected utility, cumulative prospect theory). Subjects also make twelve insurance choices over different loss probabilities and prices. The insurance choices show coherence and some correlation with various risk-attitude measures. Yet all the structural models predict insurance poorly, often less accurately than random predictions. Simpler prediction heuristics show more promise for predicting insurance choices across different conditions.

Suggested Citation

Jaspersen, Johannes Gerd and Ragin, Marc A. and Ragin, Marc A. and Sydnor, Justin R., Predicting Insurance Demand from Risk Attitudes (November 2019). NBER Working Paper No. w26508, Available at SSRN: https://ssrn.com/abstract=3496484

Johannes Gerd Jaspersen (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, DE 80539
Germany

Marc A. Ragin

University of Georgia ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

Justin R. Sydnor

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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