Insurance Demand under Prospect Theory: A Graphical Analysis
نویسنده
چکیده
Many people do not take up desaster insurance for their houses even though premiums are subsidized. A well-known example is flood insurance. At the same time they buy highly loaded insurance contracts for modest risk. Examples here are extended warranties or cellular phone insurance. This paper shows that unlike traditional decision theory prospect theory can explain this evidence provided the reference point is chosen in the right way
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