Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313142 
Year of Publication: 
2022
Citation: 
[Journal:] The Geneva Risk and Insurance Review [ISSN:] 1554-9658 [Volume:] 48 [Issue:] 1 [Publisher:] Blackwell Publishing Ltd [Place:] Oxford, UK [Year:] 2022 [Pages:] 63-109
Publisher: 
Blackwell Publishing Ltd, Oxford, UK
Abstract: 
We provide a comprehensive analysis of the impact of probability weighting on optimal insurance demand in a unified framework. We identify decreasing relative overweighting as a new local condition on the probability weighting function that is useful for comparative static analysis. We discuss the effects of probability weighting on coinsurance, deductible choice, insurance demand for low-probability, high-impact risks versus high-probability, low-impact risks, and insurance demand in the presence of nonperformance risk. Probability weighting can make better or worse predictions than expected utility depending on the insurance demand problem at hand.
Subjects: 
Insurance demand
Probability weighting
Non-expected utility
Comparative statics
Decreasing relative overweighting
JEL: 
D11
D81
G22
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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