Journal of Risk and Uncertainty

, Volume 2, Issue 3, pp 265-299

First online:

Experimental markets for insurance

  • Colin CamererAffiliated withThe Wharton School, University of Pennsylvania
  • , Howard KunreutherAffiliated withThe Wharton School, University of Pennsylvania

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This article extends the large amount of research on double-oral auction markets to hazards that produce only losses. We report results from a series of experiments in which subjects endowed with low-probability losses can pay a premium for insurance protection. Insurers specify the price at which they are willing to assume the risk of a loss. Insurance prices approach expected value for a large range of probabilities and loss amounts. Subjects seem to realize losses are statistically independent. Prices are not affected by ambiguity about the probability of loss.

Key words

insurance experimental economics prospect theory