TY - JOUR
T1 - Protecting Against Low-Probability Disasters
T2 - The Role of Worry
AU - Schade, Christian
AU - Kunreuther, Howard
AU - Koellinger, Philipp
PY - 2012/12/1
Y1 - 2012/12/1
N2 - We carry out a large monetary stakes insurance experiment with very small probabilities of losses and ambiguous as well as exact probabilities. Many individuals do not want to pay anything for insurance whether the probabilities are given exactly or are ambiguous. Many others, however, are willing to pay surprisingly large amounts. With ambiguity, the percentage of those paying nothing is smaller and the willingness to pay (WTP) of the other individuals larger than with exact probabilities. Comparing elasticities with ambiguity, we find that worry is much more important than subjective probability in determining WTP for insurance. Furthermore, when the ambiguous loss probability is increased by a factor of 1000, it has almost no effect on WTP.
AB - We carry out a large monetary stakes insurance experiment with very small probabilities of losses and ambiguous as well as exact probabilities. Many individuals do not want to pay anything for insurance whether the probabilities are given exactly or are ambiguous. Many others, however, are willing to pay surprisingly large amounts. With ambiguity, the percentage of those paying nothing is smaller and the willingness to pay (WTP) of the other individuals larger than with exact probabilities. Comparing elasticities with ambiguity, we find that worry is much more important than subjective probability in determining WTP for insurance. Furthermore, when the ambiguous loss probability is increased by a factor of 1000, it has almost no effect on WTP.
KW - Ambiguity
KW - Large stake experiment
KW - Low-probability disasters
KW - Protective decisions
KW - Worry
UR - http://www.scopus.com/inward/record.url?scp=84867641416&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84867641416&partnerID=8YFLogxK
U2 - 10.1002/bdm.754
DO - 10.1002/bdm.754
M3 - Article
AN - SCOPUS:84867641416
SN - 0894-3257
VL - 25
SP - 534
EP - 543
JO - Journal of Behavioral Decision Making
JF - Journal of Behavioral Decision Making
IS - 5
ER -