Date of this Version
Journal of Risk and Uncertainty
This paper reports the results of the first experiment in the United States designed to distinguish between two sources of ambiguity: imprecise ambiguity (expert groups agree on a range of probability, but not on any point estimate) versus conflict ambiguity (each expert group provides a precise probability estimate which differs from one group to another). The specific context is whether risk professionals (here, insurers) behave differently under risk (when probability is well-specified) and different types of ambiguity in pricing catastrophic risks (floods and hurricanes) and non-catastrophic risks (house fires). The data show that insurers charge higher premiums when faced with ambiguity than when the probability of a loss is well specified (risk). Furthermore, they tend to charge more for conflict ambiguity than imprecise ambiguity for flood and hurricane hazards, but less in the case of fire. The source of ambiguity also impacts causal inferences insurers make to reduce their uncertainty.
The final publication is available at Springer via http://dx.doi.org/10.1007/s11166-011-9117-1
ambiguity, source of uncertainty, insurance pricing, decision-making
Cabantous, L., Hilton, D., Kunreuther, H., & Michel-Kerjan, E. (2011). Is Imprecise Knowledge Better Than Conflicting Expertise? Evidence From Insurers’ Decisions in the United States. Journal of Risk and Uncertainty, 42 (3), 211-232. http://dx.doi.org/10.1007/s11166-011-9117-1
Date Posted: 27 November 2017
This document has been peer reviewed.