Insurance demand and social comparison: An experimental analysis

Friedl, Andreas, de Miranda, Katharina Lima and Schmidt, Ulrich (2014) Insurance demand and social comparison: An experimental analysis Journal of Risk and Uncertainty, 48 (2). pp. 97-109.

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Abstract

This paper analyzes whether social comparison can explain the low take-up of disaster insurance usually reported in field studies. We argue that risks in the case of disasters are highly correlated between subjects whereas risks for which high insurance take-up can be observed (e.g. extended warranties or cell phone insurance) are typically idiosyncratic. We set up a simple model with social reference points and show that in the presence of inequality aversion social comparison makes insurance indeed less attractive if risks are correlated. In addition we conducted a simple experiment which confirms these theoretical results. The average willingness to pay for insurance is significantly higher for idiosyncratic than for correlated risks.

Document Type: Article
Additional Information: Times Cited: 0 Q 0
Research affiliation: Kiel University
OceanRep > The Future Ocean - Cluster of Excellence
Refereed: Yes
ISSN: 0895-5646
Projects: Future Ocean
Date Deposited: 30 Mar 2015 12:15
Last Modified: 01 Mar 2018 10:55
URI: http://eprints.uni-kiel.de/id/eprint/27532

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