Publication
Mar 2012
This paper analyzes insurance demand under prospect theory in a simple model with two states of the world and fair insurance contracts. The authors find that the higher the probability of loss, the higher the propensity to take up insurance. This result can explain empirical evidence that has shown that people are unwilling to insure rare losses at subsidized premiums and at the same time take-up insurance for moderate risks at highly loaded premiums.
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English (PDF, 13 pages, 223 KB) |
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Author | Ulrich Schmidt |
Series | Kiel Institute Working Papers |
Issue | 1764 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2012 Kiel Institute for the World Economy |