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Can waste aversion affect demand for insurance? Evidence from experiment and survey

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  • S., Sai Krishnan
  • Iyer, Subramanian S.

Abstract

Evidence shows that people are discouraged from buying fair insurance by the thought that if they do not suffer a loss, they will have wasted their money. We extend this theory to test if waste aversion could lead to a reduction in the amount of coverage sought. We deploy a multimethod design wherein we first run incentive-compatible experiments to establish a cause-and-effect relationship. We follow it up with a survey rolled out to actual buyers of insurance to generate external validity for our results. Our findings show that waste averters demand lesser insurance coverage than non-waste averters.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:ecolet:v:216:y:2022:i:c:s016517652200177x
    DOI: 10.1016/j.econlet.2022.110594
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    References listed on IDEAS

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    More about this item

    Keywords

    Behavioral insurance; Waste aversion; Insurance demand;
    All these keywords.

    JEL classification:

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

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