Foundations and Trends® in Microeconomics > Vol 1 > Issue 2

Insurance Decision-Making and Market Behavior

Howard Kunreuther, University of Pennsylvania, USA, Mark Pauly, University of Pennsylvania, USA,
 
Suggested Citation
Howard Kunreuther and Mark Pauly (2006), "Insurance Decision-Making and Market Behavior", Foundations and TrendsĀ® in Microeconomics: Vol. 1: No. 2, pp 63-127. http://dx.doi.org/10.1561/0700000002

Published: 02 Apr 2006
© 2006 H. Kunreuther and M. Pauly
 
Subjects
Health Economics
 

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In this article:
1 Introduction
2 Benchmark Models of Choice
3 A Positive Theory of Demand for Insurance
4 Anomalies on the Demand Side
5 A Positive Theory of Supply
6 Anomalies on the Supply Side
7 Prescriptive Implications
8 Conclusion
Acknowledgements
References

Abstract

Considerable evidence suggests that many people for whom insurance is worth purchasing do not have coverage and others who appear not to need financial protection against certain events actually have purchased coverage. There are certain types of events for which one might expect to see insurance widely marketed that are viewed today by insurers as uninsurable and there are other policies one might not expect to be successfully marketed that exist on a relatively large scale. In addition, evidence suggests that cost-effective preventive measures are sometimes not rewarded by insurers in ways that could change their clients' behavior. These examples reveal that insurance purchasing and marketing activities do not always produce results that are in the best interest of individuals at risk. Insurance Decision-Making and Market Behavior discusses such behavior with the intent of categorizing these insurance "anomalies". It represents a first step in constructing a theory of insurance decision-making to explain behavior that does not conform to standard economic models of choice and decision-making. Finally, the authors propose a set of prescriptive solutions for improving insurance decision-making.

DOI:10.1561/0700000002
ISBN: 978-1-933019-25-3
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ISBN: 978-1-933019-71-0
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Table of contents:
1 Introduction
2 Benchmark Models of Choice
3 A Positive Theory of Demand for Insurance
4 Anomalies on the Demand Side
5 A Positive Theory of Supply
6 Anomalies on the Supply Side
7 Prescriptive Implications
8 Conclusion

Insurance Decision-Making and Market Behavior

Considerable evidence suggests that many people for whom insurance is worth purchasing do not have coverage and others who appear not to need financial protection against certain events actually have purchased coverage. There are certain types of events for which one might expect to see insurance widely marketed are now viewed today by insurers as uninsurable and there are other policies one might not expect to be successfully marketed that exist on a relatively large scale. In addition, evidence suggests that cost-effective preventive measures are sometimes rewarded by insurers in ways that could change their clients' behavior. These examples reveal that insurance purchasing and marketing activities do not always produce results that are in the best interest of individuals at risk. Insurance Decision Making and Market Behavior discusses such behavior with the intent of categorizing these insurance "anomalies". It represents a first step in constructing a theory of insurance decision making to explain behavior that does not conform to standard economic models of choice and decision-making. Finally, the authors propose a set of prescriptive solutions for improving insurance decision-making.

 
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