Corporate Management of Highly Dynamic Risks: Evidence from the Demand for Terrorism Insurance in Germany |
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Authors: | Christian Thomann Razvan Pascalau J-Matthias Graf von der Schulenburg |
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Institution: | 1.Institute for Risk and Insurance, Leibniz Universit?t Hannover,Hannover,Germany;2.Ministry of Finance, Financial Institutions and Markets,Stockholm,Sweden;3.Department of Economics and Finance,SUNY Plattsburgh,Plattsburgh,U.S.A. |
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Abstract: | This paper investigates a corporation's risk management response to highly dynamic risks. Using a unique data set on the German terrorist insurance market, the paper tests whether corporate risk managers have a clear understanding of the probability distribution of highly dynamic risks or if risk managers learn from severe losses and base their decisions upon day-to-day experience. The paper further investigates whether risk managers become more confident in their risk management decisions over time. For this purpose, we apply Viscusi's prospective reference theory to a corporate context. We find that firms learn from single events when making their risk management decisions, and that risk managers become more confident with their risk management decisions over time. |
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