Journal of Risk and Uncertainty

, Volume 48, Issue 2, pp 97–109

Insurance demand and social comparison: An experimental analysis

Authors

  • Andreas Friedl
    • Kiel Institute for the World Economy
  • Katharina Lima de Miranda
    • Department of EconomicsUniversity of Kiel
    • Kiel Institute for the World Economy
    • Department of EconomicsUniversity of Kiel
Article

DOI: 10.1007/s11166-014-9189-9

Cite this article as:
Friedl, A., Lima de Miranda, K. & Schmidt, U. J Risk Uncertain (2014) 48: 97. doi:10.1007/s11166-014-9189-9

Abstract

This paper analyzes whether social comparison can explain the low take-up of disaster insurance usually reported in field studies. We argue that risks in the case of disasters are highly correlated between subjects whereas risks for which high insurance take-up can be observed (e.g. extended warranties or cell phone insurance) are typically idiosyncratic. We set up a simple model with social reference points and show that in the presence of inequality aversion social comparison makes insurance indeed less attractive if risks are correlated. In addition we conducted a simple experiment which confirms these theoretical results. The average willingness to pay for insurance is significantly higher for idiosyncratic than for correlated risks.

Keywords

Disaster insuranceSocial reference pointsLoss aversionInequality aversion

JEL Classification

C91D03D14D81G22

Copyright information

© Springer Science+Business Media New York 2014