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Theory and Decision

, Volume 32, Issue 2, pp 203–207 | Cite as

Insurance buying gamblers

  • George G. Szpiro
Article
  • 63 Downloads

Abstract

The puzzling coincidence of gambling and insurance has often been analysed by taking recourse to utility functions with convex and concave regions. In this paper we show that it may be optimal for utility maximizing risk seekers to engage in insurance and gambling activities simultaneously. A possible reason for this behavior is that these individuals try to take advantage of a moral hazard situation.

Keywords

Insurance gambling moral hazard HARA utility 

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References

  1. Eden, Benjamin: 1977, ‘The role of insurance and gambling in allocating risk over time’, Journal of Economic Theory 16, 228–246.Google Scholar
  2. Friedman, Milton and Savage, Leonard J.: 1942, ‘The utility analysis of choices involving risk’, Journal of Political Economy 56, 279–301.Google Scholar
  3. Friend, Irwin and Blume, Marshall E.: 1975, ‘The demand for risky assets’, American Economic Review 65, 900–922.Google Scholar
  4. Markowitz, H.: 1952, ‘The utility of wealth’, Journal of Political Economy 60, 151–158.Google Scholar
  5. Szpiro, George G.: 1986, ‘Measuring risk aversion: an alternative approach’, Review of Economics and Statistics 68, 156–159.Google Scholar
  6. Szpiro, George G.: 1987, The decision to buy or sell insurance under constant relative risk aversion, The Geneva Papers on Risk and Insurance 12, 34–36.Google Scholar

Copyright information

© Kluwer Academic Publishers 1992

Authors and Affiliations

  • George G. Szpiro
    • 1
  1. 1.Hebrew University of JerusalemJerusalemIsrael

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