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Sharing ambiguous risks

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  • Chakravarty, Surajeet
  • Kelsey, David

Abstract

We analyse risk-sharing when individuals perceive ambiguity about future events. The main departure from previous work is that different individuals perceive ambiguity differently. We show that individuals fail to share risks for extreme events. This may provide an explanation why we do not observe individuals buying insurance for certain events like hurricanes or earthquakes and why many contracts contain an “act of God” clause, which allows non-performance if an unforeseen event occurs.

Suggested Citation

  • Chakravarty, Surajeet & Kelsey, David, 2015. "Sharing ambiguous risks," Journal of Mathematical Economics, Elsevier, vol. 56(C), pages 1-8.
    • Handle: RePEc:eee:mateco:v:56:y:2015:i:c:p:1-8
    DOI: 10.1016/j.jmateco.2014.11.001
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    2. Johannes G. Jaspersen & Richard Peter & Marc A. Ragin, 2023. "Probability weighting and insurance demand in a unified framework," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(1), pages 63-109, March.

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