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Uncertainty aversion in a simple insurance model

Author

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  • Fredrik Andersson

    (Department of Economics, Lund University, Sweden)

Abstract

A simple insurance model is considered where the distribution of accident probabilities in the population is known, but where the actual probability of each policyholder is unknown to both insurers and the policyholder himself. It is shown that if policyholders are uncertainty averse, deductibles are distorted downwards. A complete view of insurance in such circumstances need thus consider trade in uncertainty as well as risk.

Suggested Citation

  • Fredrik Andersson, 1999. "Uncertainty aversion in a simple insurance model," Finnish Economic Papers, Finnish Economic Association, vol. 12(1), pages 16-27, Spring.
    • Handle: RePEc:fep:journl:v:12:y:1999:i:1:p:16-27
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    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/f1999_1b.pdf
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    References listed on IDEAS

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    7. Fredrik Andersson, 2001. "Adverse selection and bilateral asymmetric information," Journal of Economics, Springer, vol. 74(2), pages 173-195, June.
    8. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
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    Cited by:

    1. Anwar, Sajid & Zheng, Mingli, 2012. "Competitive insurance market in the presence of ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 79-84.
    2. Fredrik Andersson, 2001. "Adverse selection and bilateral asymmetric information," Journal of Economics, Springer, vol. 74(2), pages 173-195, June.

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    More about this item

    JEL classification:

    • 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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