Contract nonperformance risk and uncertainty in insurance markets

• 成果类型: Article
• 署名作者: Biener, Christian; Landmann, Andreas; Santana, Maria Isabel
• 署名单位: University of St Gallen; University of Gottingen; University of East Anglia
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2019.05.001
• 发表日期: 2019
• 页码: 65-83
• 关键词: uncertainty; Ambiguity preferences; Pessimistic beliefs; Contract nonperformance; insurance

摘要

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. (C) 2019 Elsevier B.V. All rights reserved.