IDEAS home Printed from https://ideas.repec.org/a/pal/gpprii/v43y2018i2d10.1057_s41288-018-0082-7.html
   My bibliography  Save this article

Perceptions of Corporate Cyber Risks and Insurance Decision-Making

Author

Listed:
  • Guido Smidt

    (Aon Risk Solutions)

  • Wouter Botzen

    (Vrije Universiteit Amsterdam
    Utrecht University
    The Wharton School, University of Pennsylvania)

Abstract

This study provides an analysis of individual perceptions of cyber risks amongst professional decision makers. Data are collected using a survey of corporate professionals who are engaged in risk and insurance decision-making in various functional roles mainly in large companies. The study focuses on the perceived probability as well as the anticipated financial impact of cyber risks. Behavioural factors—the availability heuristic, threshold level of concern, degree of worry and trust in one’s own organisation’s capabilities—are found to have significant influences on the perceived probability and impact of cyberattacks. The probability of a successful cyberattack is overestimated, and the financial impact is underestimated. Given the high perceived expected value of cyberattack losses relative to the costs of cyber risk insurance, it appears that professional decision makers deviate from the expected value-based decision-making by being reluctant to insure for cyber risk.

Suggested Citation

  • Guido Smidt & Wouter Botzen, 2018. "Perceptions of Corporate Cyber Risks and Insurance Decision-Making," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(2), pages 239-274, April.
    • Handle: RePEc:pal:gpprii:v:43:y:2018:i:2:d:10.1057_s41288-018-0082-7
    DOI: 10.1057/s41288-018-0082-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41288-018-0082-7
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41288-018-0082-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shackelford, Scott J., 2012. "Should your firm invest in cyber risk insurance?," Business Horizons, Elsevier, vol. 55(4), pages 349-356.
    2. Paul Slovic & Torbjörn Malmfors & Daniel Krewski & C. K. Mertz & Nancy Neil & Sheryl Bartlett, 1995. "Intuitive Toxicology. II. Expert and Lay Judgments of Chemical Risks in Canada," Risk Analysis, John Wiley & Sons, vol. 15(6), pages 661-675, December.
    3. Dichev, Ilia D. & Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2013. "Earnings quality: Evidence from the field," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 1-33.
    4. Nicola Gennaioli & Andrei Shleifer, 2010. "What Comes to Mind," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1399-1433.
    5. Paul Slovic & Melissa L. Finucane & Ellen Peters & Donald G. MacGregor, 2004. "Risk as Analysis and Risk as Feelings: Some Thoughts about Affect, Reason, Risk, and Rationality," Risk Analysis, John Wiley & Sons, vol. 24(2), pages 311-322, April.
    6. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    7. Howard Kunreuther & Mark Pauly, 2004. "Neglecting Disaster: Why Don't People Insure Against Large Losses?," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 5-21, January.
    8. Martin Eling & Werner Schnell, 2016. "What do we know about cyber risk and cyber risk insurance?," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 17(5), pages 474-491, November.
    9. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    10. James Flynn & Paul Slovic & C. K. Mertz, 1993. "Decidedly Different: Expert and Public Views of Risks from a Radioactive Waste Repository," Risk Analysis, John Wiley & Sons, vol. 13(6), pages 643-648, December.
    11. Nicholas Barberis, 2013. "The Psychology of Tail Events: Progress and Challenges," American Economic Review, American Economic Association, vol. 103(3), pages 611-616, May.
    12. repec:cup:judgdm:v:10:y:2015:i:4:p:365-385 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael McShane & Trung Nguyen, 0. "Time-varying effects of cyberattacks on firm value," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 0, pages 1-36.
    2. Kjartan Palsson & Steinn Gudmundsson & Sachin Shetty, 0. "Analysis of the impact of cyber events for cyber insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 0, pages 1-16.
    3. Michael McShane & Trung Nguyen, 2020. "Time-varying effects of cyberattacks on firm value," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(4), pages 580-615, October.
    4. Dirk Wrede & Tino Stegen & Johann-Matthias Schulenburg, 2020. "Affirmative and silent cyber coverage in traditional insurance policies: Qualitative content analysis of selected insurance products from the German insurance market," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(4), pages 657-689, October.
    5. Davide Settembre-Blundo & Rocío González-Sánchez & Sonia Medina-Salgado & Fernando E. García-Muiña, 2021. "Flexibility and Resilience in Corporate Decision Making: A New Sustainability-Based Risk Management System in Uncertain Times," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 22(2), pages 107-132, December.
    6. Kjartan Palsson & Steinn Gudmundsson & Sachin Shetty, 2020. "Analysis of the impact of cyber events for cyber insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(4), pages 564-579, October.
    7. Daniel Zängerle & Dirk Schiereck, 2023. "Modelling and predicting enterprise-level cyber risks in the context of sparse data availability," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 434-462, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cup:judgdm:v:10:y:2015:i:4:p:365-385 is not listed on IDEAS
    2. W.J. Wouter Botzen & Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Divergence between individual perceptions and objective indicators of tail risks: Evidence from floodplain residents in New York City," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(4), pages 365-385, July.
    3. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    4. Yan, Jubo & Kniffin, Kevin M. & Kunreuther, Howard C. & Schulze, William D., 2020. "The roles of reason and emotion in private and public responses to terrorism," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 778-796.
    5. Rita Saleh & Angela Bearth & Michael Siegrist, 2019. "“Chemophobia” Today: Consumers’ Knowledge and Perceptions of Chemicals," Risk Analysis, John Wiley & Sons, vol. 39(12), pages 2668-2682, December.
    6. Scott Duke Kominers & Xiaosheng Mu & Alexander Peysakhovich, 2019. "Paying for Attention: The Impact of Information Processing Costs on Bayesian Inference," Working Papers 2019-31, Princeton University. Economics Department..
    7. Thomas Kourouxous & Thomas Bauer, 2019. "Violations of dominance in decision-making," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 209-239, April.
    8. Mark Browne & Christian Knoller & Andreas Richter, 2015. "Behavioral bias and the demand for bicycle and flood insurance," Journal of Risk and Uncertainty, Springer, vol. 50(2), pages 141-160, April.
    9. Eric LANGLAIS, 2008. "On Insurance Contract Design For Low Probability Events," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(2(4)_Summ).
    10. Abel , Martin & Cole, Shawn & Zia, Bilal, 2015. "Debiasing on a roll: changing gambling behavior through experiential learning," Policy Research Working Paper Series 7195, The World Bank.
    11. Meredith Frances Dobbie & Rebekah Ruth Brown, 2014. "A Framework for Understanding Risk Perception, Explored from the Perspective of the Water Practitioner," Risk Analysis, John Wiley & Sons, vol. 34(2), pages 294-308, February.
    12. Li An & Huijun Wang & Jian Wang & Jianfeng Yu, 2020. "Lottery-Related Anomalies: The Role of Reference-Dependent Preferences," Management Science, INFORMS, vol. 66(1), pages 473-501, January.
    13. George Wright & Fergus Bolger & Gene Rowe, 2002. "An Empirical Test of the Relative Validity of Expert and Lay Judgments of Risk," Risk Analysis, John Wiley & Sons, vol. 22(6), pages 1107-1122, December.
    14. Melissa L. Finucane & Joan L. Holup, 2006. "Risk as Value: Combining Affect and Analysis in Risk Judgments," Journal of Risk Research, Taylor & Francis Journals, vol. 9(2), pages 141-164, March.
    15. Wade, Megan, 2021. "Digital hostages: Leveraging ransomware attacks in cyberspace," Business Horizons, Elsevier, vol. 64(6), pages 787-797.
    16. Birru, Justin & Chague, Fernando & De-Losso, Rodrigo & Giovannetti, Bruno, 2019. "Attention and Biases: Evidence from Tax-Inattentive Investors," Working Paper Series 2019-22, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    17. Carol L. Silva & Hank C. Jenkins‐Smith & Richard P. Barke, 2007. "Reconciling Scientists' Beliefs about Radiation Risks and Social Norms: Explaining Preferred Radiation Protection Standards," Risk Analysis, John Wiley & Sons, vol. 27(3), pages 755-773, June.
    18. Peter Fraser‐Mackenzie & Ming‐Chien Sung & Johnnie E.V. Johnson, 2014. "Toward an Understanding of the Influence of Cultural Background and Domain Experience on the Effects of Risk‐Pricing Formats on Risk Perception," Risk Analysis, John Wiley & Sons, vol. 34(10), pages 1846-1869, October.
    19. Jacqueline Volkman-Wise, 2015. "Representativeness and managing catastrophe risk," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 267-290, December.
    20. José Luis Pinto‐Prades & José Antonio Robles‐Zurita & Fernando‐Ignacio Sánchez‐Martínez & José María Abellán‐Perpiñán & Jorge Martínez‐Pérez, 2017. "Improving scope sensitivity in contingent valuation: Joint and separate evaluation of health states," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 304-318, December.
    21. Martin Chegere & Paolo Falco & Marco Nieddiu & Lorenzo Pandolfi & Mattea Stein, 2022. "The Magic of the Game:Experimental Evidence on Sports Betting Behavior," CSEF Working Papers 655, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 15 Nov 2024.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:43:y:2018:i:2:d:10.1057_s41288-018-0082-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.