Probability weighting and insurance demand in a unified framework

• DOI: 10.1057/s10713-022-00074-x
• Publication Date: 2022-01-31T14:03:07Z
• Authors: Johannes G. Jaspe...; Richard Peter; Marc A. Ragin
• Keywords: Deductible; A-weighting

Abstract We provide a comprehensive analysis of the impact probability weighting on optimal insurance demand in unified framework. identify decreasing relative overweighting as new local condition function that is useful for comparative static analysis. discuss effects coinsurance, deductible choice, low-probability, high-impact risks versus high-probability, low-impact risks, and presence nonperformance risk. Probability can make better or worse predictions than expected utility depending problem at hand.