Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

12-2012

Publication Source

Journal of Behavioral Decision Making

Volume

25

Issue

5

Start Page

534

Last Page

543

DOI

10.1002/bdm.754

Abstract

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. Copyright © 2011 John Wiley & Sons, Ltd.

Copyright/Permission Statement

This is the peer reviewed version of the following article: Schade, C., Kunreuther, H. and Koellinger, P. (2012), Protecting Against Low-Probability Disasters: The Role of Worry. J. Behav. Dec. Making, 25: 534–543. doi:10.1002/bdm.754, which has been published in final form at http://dx.doi.org/10.1002/bdm.754. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms

Embargo Date

9-26-2013

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Date Posted: 27 November 2017

This document has been peer reviewed.