Goals and Plans in Protective Decision Making

42 Pages Posted: 30 Aug 2006 Last revised: 8 May 2012

See all articles by David Krantz

David Krantz

Columbia University

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Date Written: August 2006

Abstract

Protective decisions are often puzzling. Among other anomalies, people insure against non-catastrophic events, underinsure against catastrophic risks, and allow extraneous factors to influence insurance purchases and other protective decisions. Neither expected utility theory nor prospect theory can explain these anomalies satisfactorily. We propose a constructed-choice model for general decision making. The model departs from utility theory and prospect theory in its treatment of multiple goals and it suggests several different ways in which context can affect choice. To apply this model to the above anomalies, we consider many different insurance-related goals, organized in a taxonomy, and we consider the effects of context on goals, resources, plans and decision rules. The paper concludes by suggesting some prescriptions for improving individual decision making with respect to protective measures.

Suggested Citation

Krantz, David and Kunreuther, Howard C., Goals and Plans in Protective Decision Making (August 2006). NBER Working Paper No. w12446. Available at SSRN: https://ssrn.com/abstract=924536

David Krantz

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Howard C. Kunreuther (Contact Author)

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

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