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Journal of Risk and Uncertainty

, Volume 50, Issue 2, pp 141–160 | Cite as

Behavioral bias and the demand for bicycle and flood insurance

  • Mark J. BrowneEmail author
  • Christian Knoller
  • Andreas Richter
Article

Abstract

With data from an insurer that provides coverage for both a low probability, high consequence (LPHC) risk (the flood peril) and a high probability, low consequence (HPLC) risk (bicycle theft), we investigate behavioral bias in the demand for insurance. Our analysis provides evidence which is consistent with a preference for insurance for HPLC risks over LPHC risks: we find that many more policyholders purchase add-on coverage to their homeowner’s insurance to cover the risk of bicycle theft than to cover the risk of loss due to flooding. In addition, we find mixed evidence on whether policyholders’ insurance coverage decisions are responsive to changes in their risk exposure. We find a strong relationship between wealth and the demand for both types of coverage.

Keywords

Decision making under risk Risk assessment Insurance demand 

JEL Classifications

D81 D83 D84 

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Mark J. Browne
    • 1
    Email author
  • Christian Knoller
    • 2
  • Andreas Richter
    • 2
  1. 1.Robert Clements Distinguished Chair, School of Risk Management, Tobin College of BusinessSt. John’s UniversityNew YorkUSA
  2. 2.Munich Risk and Insurance CenterLudwig-Maximilians-Universität MunichMunichGermany

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