Seminar WS 2015/16 Insurance Demand (Antje Mahayni und Nikolaus Schweizer) (1) Gollier et al. (2013), Risk and choice: A research saga

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1 Universität Duisburg-Essen, Campus Duisburg SS 2015 Mercator School of Management, Fachbereich Betriebswirtschaftslehre Lehrstuhl für Versicherungsbetriebslehre und Risikomanagement Prof. Dr. Antje Mahayni Seminar WS 2015/16 Insurance Demand (Antje Mahayni und Nikolaus Schweizer) Literature (1) Gollier et al. (2013), Risk and choice: A research saga 1. Risk preferences Risk preferences determine the (optimal) demand for insurance 1.1. Risk Aversion in the Small and in the Large Pratt (1964) 1.2. (Kimball (1990), Precautionary Saving in the Small and in the Large) 1.3 Menezes et al. (1980), Increasing Downside Risk 1.4. Eeckhoudt and Schlesinger (2013), Higher-Order Risk Attitudes Although higher-order attitudes are not identical to preferences over moments of a statistical distribution, the authors show how they are consistent with such preferences. They also discuss how higher-order risk attitudes might be applied in insurance models. 1.5 Anomalies: Risk Aversion Rabin et al. (2000), Rabin and Thaler (2001) An empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm. 1

2 2. (Basic) theory of insurance demand 2.1. (Schlesinger (1981), The Optimal Level of Deductibility in Insurance Contracts) Schlesinger (2000), The theory of insurance demand 2.2. Schlesinger (1997), Insurance demand without the expected-utility paradigm 3. Theory of Insurance Demand 3.1. Fei and Schlesinger (2008), Background risk 3.2 Doherty and Schlesinger (1983), The optimal deductible for an insurance policy when initial wealth is random 3.3 Hong et al. (2011), Mossin s Theorem given random initial wealth 4. Risk sharing and insurance demand non EU 4.1. Schmidt (1999), Efficient Risk-Sharing and the Dual Theory of Choice under Risk 5. Regret and Prospect Theory Winning the top prize of 10,000 Euro in a lottery may leave one much happier than receiving 10,000 Euro as the lowest prize in a lottery 5.1. Bell (1985), Disappointment in decision making under uncertainty Loomes and Sugden (1982), An Alternative Theory of Rational Choice Under Uncertainty 5.2. Optimal insurance purchase decisions of individuals that exhibit behavior consistent with Regret Theory Braun and Muermann (2004) 2

3 5.3 Kahneman and Tversky (1979), Prospect theory: An analysis of decision under risk 5.4 Schmidt (2015), Insurance demand under prospect theory: A graphical analysis 6. Self-insurance and self-protection Self-insurance: methods for reducing the severity of any loss that occurs Self-protection: methods for reducing the probability of the occurrence of a loss 6.1. Ehrlich and Becker (1972), Market Insurance, Self-Insurance, and Self- Protection Dionne and Eeckhoudt (1985), Self-insurance, self-protection and increased risk aversion Briys and Schlesinger (1990), Risk Aversion and the Propensities for Self-Insurance and Self-Protection 6.2 Eeckhoudt and Gollier (2005), The impact of prudence on optimal prevention 6.3 Hofmann and Peter (2015), Self-Insurance, Self-Protection, and Saving: On Consumption Smoothing and Risk Management This article studies the effect of risk preferences on self-insurance and self-protection in a two-period expected utility framework. 6.4 (Alary et al. (2013), The Effect of Ambiguity Aversion on Insurance and Self-protection) References Alary, D., Gollier, C. and Treich, N. (2013), The Effect of Ambiguity Aversion on Insurance and Self-protection, The Economic Journal 123(573), Bell, D. E. (1985), Disappointment in decision making under uncertainty, Operations research 33(1), Braun, M. and Muermann, A. (2004), The impact of regret on the demand for insurance, Journal of Risk and Insurance 71(4), Briys, E. and Schlesinger, H. (1990), Risk aversion and the propensities for self-insurance and self-protection, Southern Economic Journal pp Dionne, G. and Eeckhoudt, L. (1985), Self-insurance, self-protection and increased risk aversion, Economics Letters 17(1),

4 Doherty, N. A. and Schlesinger, H. (1983), The optimal deductible for an insurance policy when initial wealth is random, Journal of Business pp Eeckhoudt, L. and Gollier, C. (2005), The impact of prudence on optimal prevention, Economic Theory 26(4), Eeckhoudt, L. and Schlesinger, H. (2013), Higher-order risk attitudes, Handbook of Insurance, Springer, pp Ehrlich, I. and Becker, G. S. (1972), Market insurance, self-insurance, and self-protection, The Journal of Political Economy pp Fei, W. and Schlesinger, H. (2008), Precautionary Insurance Demand With State-Dependent Background Risk, Journal of Risk and Insurance 75(1), Gollier, C., Hammitt, J. K. and Treich, N. (2013), Risk and choice: A research saga, Journal of risk and uncertainty 47(2), Hofmann, A. and Peter, R. (2015), Self-Insurance, Self-Protection, and Saving: On Consumption Smoothing and Risk Management, Journal of Risk and Insurance. Hong, S. K., Lew, K. O., MacMinn, R. and Brockett, P. (2011), Mossin s Theorem given random initial wealth, Journal of Risk and Insurance 78(2), Kahneman, D. and Tversky, A. (1979), Prospect theory: An analysis of decision under risk, Econometrica: Journal of the Econometric Society pp Kimball, M. S. (1990), Precautionary Saving in the Small and in the Large, Econometrica: Journal of the Econometric Society pp Loomes, G. and Sugden, R. (1982), Regret theory: An alternative theory of rational choice under uncertainty, The economic journal pp Menezes, C., Geiss, C. and Tressler, J. (1980), Increasing downside risk, The American Economic Review pp Pratt, J. W. (1964), Risk aversion in the small and in the large, Econometrica: Journal of the Econometric Society pp Rabin, M. and Thaler, R. H. (2001), Anomalies: risk aversion, Journal of Economic perspectives pp Rabin, M. et al. (2000), Risk aversion and expected-utility theory: A calibration theorem, University of California at Berkeley, Department of Economics. 4

5 Schlesinger, H. (1981), The optimal level of deductibility in insurance contracts, Journal of risk and insurance pp Schlesinger, H. (1997), Insurance demand without the expected-utility paradigm, Journal of Risk and Insurance pp Schlesinger, H. (2000), The theory of insurance demand, Handbook of insurance, Springer, pp Schmidt, U. (1999), Efficient risk-sharing and the dual theory of choice under risk, Journal of Risk and Insurance pp Schmidt, U. (2015), Insurance demand under prospect theory: A graphical analysis, Journalof risk and insurance, DOI: /jori