Working Paper

Insurance Demand and Social Comparison: An Experimental Analysis

Kiel Working Papers, 1803

This paper analyzes whether social comparison can explain the low take up of disaster insurance usually reported in field studies. We argue that risks in the case of disasters are highly correlated between subjects whereas risks for which high insurance take up can be observed (e.g. extended warranties or cell phone insurance) are typically idiosyncratic. We set up a simple model with social reference points and show that in the presence of loss or inequality aversion social comparison makes insurance indeed less attractive if risks are correlated. In Addition we conducted a simple experiment which confirms these theoretical results. The average willingness to pay for insurance is significantly higher for idiosyncratic than for correlated risks.

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Publication Date
JEL Classification
C91, D14, D81, G22