The Valuation of Insurance under Uncertainty: Does Information about Probability Matter? |
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Authors: | Carmela Di Mauro and Anna Maffioletti |
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Institution: | (1) Dipartimento di Economia Politica, Università della Calabria, Arcavacata di Rende, Italy;(2) Dipartimento di Economia Politica, Università di Torino, Italy;;(3) School of Economic Studies, University of Hull, UK |
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Abstract: | In a laboratory experiment we test the hypothesis that consumers' valuation of insurance is sensitive to the amount of information available on the probability of a potential loss. In order to test this hypothesis we simulate a market in which we elicit individuals' willingness to pay to insure against a loss characterised either by known or else vague probabilities. We use two distinct treatments by providing subjects with different information over the vague probabilities of loss. In general we find that uncertainty about probabilities has a weak impact on consumers' valuation of insurance. However, additional information about probabilities tends to marginally increase the price individuals are willing to pay to insure themselves. Implications for the insurance market are derived. |
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Keywords: | insurance probability uncertainty ambiguity information |
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