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Regret, rejoicing, and mixed insurance

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  • Fujii, Yoichiro
  • Okura, Mahito
  • Osaki, Yusuke

Abstract

This study examines how regret and rejoicing affect mixed insurance choice and demand. In contrast to expected utility theory, regret and rejoicing may explain why some individuals prefer to hold mixed insurance rather than term insurance. In this study, we derive the conditions under which an individual prefers to hold mixed insurance rather than term insurance. We also study demand for mixed insurance and specify the factors that influence the demand motive. The demand motive is determined by the risk effect and the rejoicing effect, when the rejoicing effect dominates the risk effect, under-insurance is optimal, and vice versa.

Suggested Citation

  • Fujii, Yoichiro & Okura, Mahito & Osaki, Yusuke, 2016. "Regret, rejoicing, and mixed insurance," Economic Modelling, Elsevier, vol. 58(C), pages 126-132.
    • Handle: RePEc:eee:ecmode:v:58:y:2016:i:c:p:126-132
    DOI: 10.1016/j.econmod.2016.05.026
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    References listed on IDEAS

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    Cited by:

    1. Qin, Jie, 2020. "Regret-based capital asset pricing model," Journal of Banking & Finance, Elsevier, vol. 114(C).
    2. Fujii, Yoichiro & Nakamura, Yutaka, 2021. "Regret-sensitive equity premium," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 302-307.
    3. Fujii, Yoichiro & Okura, Mahito & Osaki, Yusuke, 2021. "Is insurance normal or inferior? -A regret theoretical approach-," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Full insurance; Mixed insurance; Regret; Rejoicing;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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