Journal Article

Insurance Demand and Social Comparison: An Experimental Analysis

Authors

  • Andreas Friedl
  • Katharina Lima de Miranda
  • Ulrich Schmidt
Publication Date

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 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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Info

JEL Classification
C91, D14, D81, G22

Key Words

  • disaster insurance
  • inequality aversion
  • loss aversion
  • social reference points