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Time Insensitivity for Protective Investments

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  • Kunreuther, Howard
  • Onculer, Ayse
  • Slovic, Paul

Abstract

Investments in protective measures involve an initial immediate cost in exchange for a stream of potential benefits accruing over time in the form of reduced expected losses. This paper describes two studies in which individuals were asked both to make choices and indicate the maximum amount they were willing to pay (WTP) for such protective measures. By varying the number of years that the measures provided protection, we observed four different decision strategies that individuals use to determine their maximum WTP. The findings from these experiments strongly suggest that most individuals do not take into account the added benefits of having a protective measure in place over a longer period of time when determining the likelihood of purchasing protection or the maximum price they are willing to pay. The behavior of a relatively small proportion of the subjects was consistent with a discounted utility model. Most subjects were either myopic in their behavior or did not change their maximum WTP as the time horizon changed. Despite the fact that most subjects were insensitive to time changes, they were generally willing to purchase the protective measures. Implications of these results for investment in risk mitigation measures are briefly explored. Copyright 1998 by Kluwer Academic Publishers

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  • Kunreuther, Howard & Onculer, Ayse & Slovic, Paul, 1998. "Time Insensitivity for Protective Investments," Journal of Risk and Uncertainty, Springer, vol. 16(3), pages 279-299, July-Aug..
    • Handle: RePEc:kap:jrisku:v:16:y:1998:i:3:p:279-99
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    Citations

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    Cited by:

    1. Vineet Kumar Jain & Rachel Ann Davidson, 2007. "Application of a Regional Hurricane Wind Risk Forecasting Model for Wood‐Frame Houses," Risk Analysis, John Wiley & Sons, vol. 27(1), pages 45-58, February.
    2. E. Peters & H. Kunreuther & N. Sagara & P. Slovic & D. R. Schley, 2012. "Protective Measures, Personal Experience, and the Affective Psychology of Time," Risk Analysis, John Wiley & Sons, vol. 32(12), pages 2084-2097, December.
    3. Yilin Zou & Alexia Stock & Rachel Davidson & Linda Nozick & Joseph Trainor & Jamie Kruse, 2020. "Perceived attributes of hurricane-related retrofits and their effect on household adoption," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 104(1), pages 201-224, October.
    4. Julie Olivero, 2014. "Les Établissements Industriels Face Aux Risques Environnementaux : Les Bassins De Gardanne, De Fos-Berre Et De L'Huveaune," Post-Print hal-01662395, HAL.
    5. Julie Olivero, 2014. "Les Établissements Industriels Face Aux Risques Environnementaux : Les Bassins De Gardanne, De Fos-Berre Et De L’Huveaune," Post-Print hal-03608561, HAL.
    6. Paul R. Kleindorfer & Howard Kunreuther, 1999. "The Complementary Roles of Mitigation and Insurance in Managing Catastrophic Risks," Risk Analysis, John Wiley & Sons, vol. 19(4), pages 727-738, August.
    7. Kruse, Jamie Brown & Thompson, Mark A., 2003. "Valuing low probability risk: survey and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 495-505, April.
    8. Guyse, Jeffery L. & Keller, L. Robin & Eppel, Thomas, 2002. "Valuing Environmental Outcomes: Preferences for Constant or Improving Sequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 87(2), pages 253-277, March.
    9. Aric Shafran, 2011. "Self-protection against repeated low probability risks," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 263-285, June.
    10. Harrell Chesson & W. Viscusi, 2003. "Commonalities in Time and Ambiguity Aversion for Long-Term Risks ," Theory and Decision, Springer, vol. 54(1), pages 57-71, February.
    11. Joseph T. Ripberger & Hank C. Jenkins‐Smith & Carol L. Silva & Jeffrey Czajkowski & Howard Kunreuther & Kevin M. Simmons, 2018. "Tornado Damage Mitigation: Homeowner Support for Enhanced Building Codes in Oklahoma," Risk Analysis, John Wiley & Sons, vol. 38(11), pages 2300-2317, November.

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