Insurance and behavioral economics : improving decisions in the most misunderstood industry / Howard Kunreuther, Mark V. Pauly, Stacey McMorrow.

"This book examines the behavior of individuals at risk, insurance industry decision makers and policy makers involved in the selling, buying, and regulating of insurance"-- Provided by publisher

Includes bibliographical references and index.

Print version record.

Cover; Insurance and Behavioral Economics; Title; Copyright; Contents; Preface; Acknowledgments; Part I Contrasting Ideal and Real Worlds of Insurance; 1 Purposes of This Book; The Roots of Misunderstanding of Insurance; Comparing actual behavior with Benchmark Models; Summary; 2 An Introduction to Insurance in Practice and Theory; Four Examples of Insurance Behavior in Practice; Insurance and the U.S. Economy; The Benchmark Model of Supply; Fundamental Principles of Insurance Supply; The Law of Large Numbers, Insurance Supply, and Competitive Equilibrium; Solving Two Interrelated Problems.

The Benchmark Model of DemandDemand for Insurance using the Expected Utility Model; Choosing Optimal Deductibles; Summary; 3 Anomalies and Rumors of Anomalies; Insurance in the Media; A Short Tour of Studies on Behavioral Models and Insurance Anomalies; The Elements of Anomaly: A Hypothetical Example; Defining Anomalies; Types of Anomalies; Demand-Side Anomalies; Supply-Side Anomalies; Summary; 4 Behavior Consistent with Benchmark Models; Relevant Assumptions for Examining Behavior; Automobile Collision Coverage; Renters' Insurance; Term-Life Insurance; Summary; Appendix to Chapter 4.

Estimate of Voluntary Collision Purchase Using Consumer Expenditure Survey DataStep One: Estimate a premium equation using those individuals with financing.; Step Two: Use the model to predict premiums for those purchasing cars without financing.; Step Three: Compare actual and predicted premiums to infer the percentage purchasing collision coverage.; Part II Understanding Consumer and Insurer Behavior; 5 Real-World Complications; Search Costs; Mistakes and Anomalous Behavior; Information Imperfections and Asymmetry; Imperfect Information about Risk.

Information Asymmetry and Adverse SelectionAdverse Selection in Practice; Information Imperfection and Moral Hazard; Effects of Correlated Risks on Insurance Supply; Role of Reserves in Dealing with Correlated Losses; Equilibrium of Insurance Firms and Capital Markets; Relationship to Mutual Insurance; Implications for Insurer Supply Behavior; Summary; 6 Why People Do or Do Not Demand Insurance; Prospect Theory and the Demand for Insurance; The Value Function; The Weighting Function; Explaining Insurance Anomalies by Myopic Loss Aversion; A Goal-based Model of Choice; Role of Goals and Plans.

Taxonomy of Insurance-Related GoalsOther Behavioral Explanations; Summary; 7 Demand Anomalies; Seven Anomalies; Failure to Protect against Low-Probability, High-Consequence Events; Purchasing Insurance after a Disaster Occurs; Cancelling Insurance if There Has Been No Loss; Preferences for Policies with Rebates; Preference for Low Deductibles; Unwillingness to Make Small Claims above the Deductible; Status Quo Bias: A Natural Insurance Experiment; Insurance Markets in which Demand Differs from the Benchmark Model; Flight Insurance: Insuring Specific Risks; Rental Car Insurance.

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