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Evidence that waste aversion begets insurance aversion

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  • de Meza, David
  • Diane Reyniers, Liza C. Fessner

Abstract

Paying an insurance premium but not needing to claim is sometimes viewed as pouring money down the drain. Aversion to the perceived waste may lead to the rejection of fair insurance. Although policies paying rebates if no claim is made are not attractive to expected utility maximisers, this paper finds strong evidence they appeal to waste averters.

Suggested Citation

  • de Meza, David & Diane Reyniers, Liza C. Fessner, 2015. "Evidence that waste aversion begets insurance aversion," Economics Letters, Elsevier, vol. 126(C), pages 75-77.
    • Handle: RePEc:eee:ecolet:v:126:y:2015:i:c:p:75-77
    DOI: 10.1016/j.econlet.2014.11.018
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    References listed on IDEAS

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    1. Kunreuther,Howard C. & Pauly,Mark V. & McMorrow,Stacey, 2013. "Insurance and Behavioral Economics," Cambridge Books, Cambridge University Press, number 9780521608268.
    2. Hogarth, Robin M & Kunreuther, Howard, 1995. "Decision Making under Ignorance: Arguing with Yourself," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 15-36, January.
    3. Kunreuther,Howard C. & Pauly,Mark V. & McMorrow,Stacey, 2013. "Insurance and Behavioral Economics," Cambridge Books, Cambridge University Press, number 9780521845724.
    4. Michael Braun & Alexander Muermann, 2004. "The Impact of Regret on the Demand for Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 737-767, December.
    5. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    6. repec:cup:judgdm:v:2:y:2007:i::p:137-168 is not listed on IDEAS
    7. Justin Sydnor, 2010. "(Over)insuring Modest Risks," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 177-199, October.
    8. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
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    Cited by:

    1. Kangoh Lee, 2017. "Consumer perception, information provision, and regulation of insurance markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 1-17, February.
    2. S., Sai Krishnan & Iyer, Subramanian S., 2022. "Can waste aversion affect demand for insurance? Evidence from experiment and survey," Economics Letters, Elsevier, vol. 216(C).

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    More about this item

    Keywords

    Insurance; Waste aversion; No-claim rebate; Prospect theory;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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