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The Affection Effect in Insurance Decisions

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We use insurance behavior as a context to study affective influences in seemingly purely monetary decisions. We report two related findings. First, people are more willing to purchase insurance for an object at stake, the more affection they have for the object, holding the amount of compensation constant. Second, if the object is damaged, people are also more willing to go through the trouble of claiming a fixed amount of compensation, the more affection they have for the object. These effects are not predicted by standard decision theories. We explain these findings by a “consolation hypothesis,” according to which, people perceive insurance compensation as a token of consolation, and we discuss its implications for affective influences in other types of decisions.

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Hsee, C.K., Kunreuther, H.C. The Affection Effect in Insurance Decisions. Journal of Risk and Uncertainty 20, 141–159 (2000).

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