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How do Optimistic Individuals Affect Insurance Advertisements?

Author

Listed:
  • Fujii Yoichiro

    (School of Commerce, Meiji University, Chiyoda-ku, Tokyo, Japan)

  • Ogaku Michiko

    (Faculty of Economics, Nagasaki University, Nagasaki, Japan)

  • Okura Mahito

    (Department of Social System Studies, Faculty of Contemporary Social Studies, Doshisha Women’s College of Liberal Arts, Kyotanabe, Kyoto, Japan)

  • Osaki Yusuke

    (Faculty of Commerce, Waseda University, Shinjuku-ku, Tokyo, Japan)

Abstract

Some people have optimistic expectations regarding their accident probability, and thus, refrain from purchasing adequate insurance. This study investigates how insurance firms use advertisements to lower the ratio of optimistic individuals in the market. The main results are as follows: first, the optimal level of advertisements is maximized when the insurance premium is moderate. Second, the maximum level of advertisement varies according to the degree of optimism, which is measured by the difference between accurate and optimistic accident probabilities. Third, the advertisement decision is affected by the free-rider problem, and the equilibrium number of insurance firms with advertisement is always larger than that of firms without advertisement in a competitive insurance market.

Suggested Citation

  • Fujii Yoichiro & Ogaku Michiko & Okura Mahito & Osaki Yusuke, 2020. "How do Optimistic Individuals Affect Insurance Advertisements?," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(2), pages 1-18, July.
    • Handle: RePEc:bpj:apjrin:v:14:y:2020:i:2:p:18:n:3
    DOI: 10.1515/apjri-2019-0039
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    insurance; optimism; advertisement;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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