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Memory, Risk Aversion, and Nonlife Insurance Consumption: Evidence from Emerging and Developing Markets

Author

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  • Ashu Tiwari

    (Department of Economics & Public Policy, Indian Institute of Management Rohtak, Management City, Southern Bypass, NH 10, Sunaria, Rohtak, Haryana 124001, India)

  • Archana Patro

    (Department of Finance & Accounting, Indian Institute of Management Rohtak, Management City, Southern Bypass, NH 10, Sunaria, Rohtak, Haryana 124001, India)

Abstract

Policymakers in developing and emerging countries are facing higher risk that is related to natural disasters in comparison to developed ones because of persistent problem of supply-side bottleneck for disaster insurance. Additionally, lower insurance consumption, higher disaster risk, and high income elasticity of insurance demand have worsened the loss consequences of natural disaster in these markets. In this context, current study for the first time argues that the supply side bottleneck problem has its origin in peculiar pattern of disaster consumption owing to memory cues. The study finds that relatively higher frequency of natural disasters acts as a negative memory cue and positively impacts insurance consumption. On the other hand, a relatively lower frequency of natural disasters adversely impacts insurance consumption in the background of variation in risk aversion behavior. For this purpose, current study has based its work on Mullainathan (2002), which builds its argument around memory cues.

Suggested Citation

  • Ashu Tiwari & Archana Patro, 2018. "Memory, Risk Aversion, and Nonlife Insurance Consumption: Evidence from Emerging and Developing Markets," Risks, MDPI, vol. 6(4), pages 1-17, December.
    • Handle: RePEc:gam:jrisks:v:6:y:2018:i:4:p:145-:d:190536
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    2. Trinh, Cong Tam & Nguyen, Xuan & Sgro, Pasquale & Pham, Cong S., 2020. "Culture, financial crisis and the demand for property, accident and health insurance in the OECD countries," Economic Modelling, Elsevier, vol. 93(C), pages 480-498.

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