Contract nonperformance risk and uncertainty in insurance markets
Biener C, Landmann A, Santana MI (2019)
Publication Type: Journal article
Publication year: 2019
Journal
Book Volume: 175
Pages Range: 65-83
DOI: 10.1016/j.jpubeco.2019.05.001
Abstract
Insurance contracts may fail to perform, leading to a default on valid claims. We relax the standard assumption of known probabilities for such defaults by allowing for uncertainty. Within a large behavioral experiment, we show that introducing risk and uncertainty each leads to significant reductions in insurance demand and that the effects are comparable in magnitude (17.1 and 14.5 percentage points). Furthermore, risk- and ambiguity-averse participants are affected most. These findings are in line with models incorporating ambiguity attitudes or, alternatively, pessimistic beliefs. An analysis of the belief and decision dynamics suggests persistent pessimistic priors and disregard of peer experiences, leading to a stable uncertainty effect.
Authors with CRIS profile
Involved external institutions
University of East Anglia
United Kingdom (GB)
Universität St.Gallen
Switzerland (CH)
Georg-August-Universität Göttingen
Germany (DE)
United Kingdom (GB)
Universität St.Gallen
Switzerland (CH)
Georg-August-Universität Göttingen
Germany (DE)
How to cite
APA:
Biener, C., Landmann, A., & Santana, M.I. (2019). Contract nonperformance risk and uncertainty in insurance markets. Journal of Public Economics, 175, 65-83. https://dx.doi.org/10.1016/j.jpubeco.2019.05.001
MLA:
Biener, Christian, Andreas Landmann, and Maria Isabel Santana. "Contract nonperformance risk and uncertainty in insurance markets." Journal of Public Economics 175 (2019): 65-83.
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