Morone, Andrea and Ozdemir, Ozlem (2012): Black swan protection: an experimental investigation.
Download (484Kb) | Preview
This experimental study investigates insurance decisions in low-probability, high-loss risk situations. Results indicate that subjects consider the probability of loss (loss size) when they make buying decisions (paying decisions). Most individuals are risk averse with no specific threshold probability.
|Item Type:||MPRA Paper|
|Original Title:||Black swan protection: an experimental investigation|
|Keywords:||Black swan; Risk, Insurance; Low probability; High loss; Experiment|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
|Depositing User:||Andrea Morone|
|Date Deposited:||16. May 2012 13:37|
|Last Modified:||20. Feb 2013 10:45|
Arrow, K. J. (1996), “The theory of risk bearing: small and great risks,” Journal of Risk and Uncertainty 12(2/3), 103-111.
Becker, G. M., M. E. De Groot, and J. Marschak, (1964), “Measuring utility by a single response sequential method,” Behavioral Science 9, 226-232.
Borling, A., Hans Keiding (2002), “Stochastic dominance and conditional expectation-an insurance theoretical approach,” The Geneva Papers on Risk and Insurance Theory 27, 31-48.
Brookshire, D. S., M. A. Thayer, J. Tschirhart - W. D. Schulze (1985), “A test of the expected utility model: evidence from earthquake risks,” Journal of Political Economy 93(2), 369-389.
Camacho-Cuena, E., C. Seidl, A. Morone, (2005), “Comparing preference reversal for general lotteries and income distributions” Journal of Economic Psychology, vol. 26 (5), 682-710.
Camerer, C. F., H. Kunreuther (1989), “Decision processes for low probability events: policy implications,” Journal of Policy Analysis and Management 8(4), 565-592.
Camerer, C. (1995), Individual Decision Making, in J. H. Kagel, and A. E. Roth, Handbook of Experimental Economics, Princeton University Press, 587-616.
Cook, P. J., D. A. Graham (1975), The Demand for Insurance and Protection: The Case of the Irreplaceable Commodity. Draft Report, Duke University, North Carolina.
Di Mauro, C., and Maffioletti A. (2004), “Attitudes to risk and attitudes to uncertainty: Experimental evidence,” Applied Economics, 36, 357-72.
Dong, W., H. C. Shah, F. Wong (1996), “A rational approach to pricing of catastrophe insurance,” Journal of Risk and Uncertainty 12(2/3), 201-219.
Drehmann, M., J. Oechssler, A. Roider (2007), „Herding with and without payoff externalities-an internet experiment,” International Journal of Industrial Organization 25, 391-415.
Etchart-Vincent, N. (2004), “Is probability weighting sensitive to the magnitude of consequences: an experimental investigation on losses,” Journal of Risk and Uncertainty 28 (3), 217-235.
Fischbacher, U. (2007), “Zurich toolbox for readymade economic experiments,” Experimental Economics, 10, 171-178.
Ganderton, P. T., D. S. Brookshire, M. McKee, S. Steward, H. Thurston (2000), “Buyinginsurance for disaster-type risks: experimental evidence,” Journal of Risk and Uncertainty 20 (3), 271-289.
Greiner, B. (2004), An Online Recruitment System for Economic Experiments. In: Kremer, K., Macho, V. (Eds.).
Grether, D.M. Plott, C. R. (1979), “Economic theory of choice and the preference reversal phenomenon,” American Economic Review 69 (4), 623-638.
Harbaugh, W., K. Krause, L. Vesterlund, 2002. Prospect theory in choice and pricing tasks,” University of Oregon, Economics Department, Working papers, 27.
Hershey, J. C. P. J.H. Schoemaker (1980), “Risk taking and problem context in the domain of losses: an expected utility analysis,” Journal of Risk and Insurance 47 (1), 111-132.
Hey, J.D., J. Lee (2005), “Do subjects separate (or are they sophisticated)?,” Experimental Economics 8, 233-265.
Hey, J.D., Morone, A., Schmidt, U., (2009) “Noise and Bias in Eliciting Preferences”, Journal of Risk and Uncertainty, vol. 39(3): 213-235.
Holt, C.A. (1986), “Preference reversals and the independence axiom,” American Economic Review 76 (3), 508-515.
Kagel, J. H., A. E. Roth (1995), The Handbook of Experimental Economics, Princeton.
Kahneman, D., A. Tversky (1979), “Prospect theory, an analysis of decision under risk,” Econometrica 47, 263-291.
Kuhn, K. M., Budescu D. V. (1996), “The relative importance of probabilities, outcomes, and vagueness in hazard risk decisions,” Organizational Behavior and Human Decision Processes 68 (3), 301-317.
Kunreuther, H., P. Slovic (1978), “Economics, psychology, and protective behavior,” American Economic Review 68:2, Papers and Proceedings of the Ninetieth annual Meeting of the American Economic Association, 64-69.
Laury, S. K. (2006), Pay one or pay all: random selection of one choice for payment. http://expecon.gsu.edu/workingpapers/GSU_EXCEN_working_paper_2006-24.pdf
Machina, M.J., Pratt, J.W. (1997), “Increasing risk: some direct constructions,” Journal of Risk and Uncertainty 14, 103-127.
McClelland, G. H., W. D. Schulze, B. Hurd (1990), “The effect of risk beliefs on property values: a case study of a hazardous waste site,” Risk Analysis 10(4), 485-97.
McClelland, G. H., W. D. Schulze, D. L. Coursey (1993), “Insurance for low-probability hazards: a bimodal response to unlikely events,” Journal of Risk and Uncertainty 7, 95-116.
McDaniels, T. L., M. S. Kamlet, G. W. Fischer (1992), “Risk perception and the value of safety,” Risk Analysis 12 (4), 495-503.
Meroz, Y., Morone A. ,Morone P., (2012) “Eliciting environmental preferences of Ghanaians in the laboratory: An incentive compatible experiment” International Journal of Environment and Sustainable Development
Morgenstern, O. (1979), Some Reflections on Utility Theory, the Expected Utility Hypothesis and the Allais Paradox, M. Allais and O. Hagen, eds., Dorbrecht: D. Reidel.
Morone, A., U. Schmidt, (2008) “An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data”, Economics Bulletin, vol. 4(20): 1-12.
Morone, A., (2008) “Comparison of Mean-Variance Theory and Expected-Utility Theory through a Laboratory Experiment”, Economics Bulletin, vol. 3(40), pages 1-7.
Morone, A., (2010), “On price data elicitation: A laboratory investigation” The Journal of Socio-Economics, vol. 39(5): 540-545
Morone, A., Ozdemir O., (2012) “Displaying Uncertain information About Probability: Experimental Evidence” Bulletin of Economic Research, 2012.
Morone, A., P. Morone, (2012), "Are small groups expected utility?," MPRA Paper 38198, University Library of Munich, Germany.
Müller, A. (1998), “Comparing risks with unbounded distributions,” Journal of Mathematical Economics 30, 229-239.
Plott, C. R., Zeiler K.(2005), „The willingness to pay- willingness to accept gap, the “endownment effect”, subject misconceptions, and experimental procedures for eliciting valuations,” American Economic Review 95 (3), 530-45.
Pommerehne, W.W., F., Schneider, P. Grether, C.R. Plott (1982), “Economic theory of choice and the preference reversal phenomenon: a reexamination/reply,” American Economic Review 72 (3), 569-576.
Rothschild, M., Stiglitz, J.E.(1970), “Increasing risk: I. A. definition,” Journal of Economic Theory 2, 225-243.
Segal, U. (1988), “Does the preference reversal phenomenon necessarily contradict the independence axiom?,” American Economic Review 78 (1), 233-236.
Sjöberg, L. (1999), “Consequences of perceived risk: Demand for mitigation,” Journal of Risk Research 2, no.2: 129-149.
Slovic, P., B. Fischhoff, S. Lichtenstein, B. Corrigan, B. Combs (1977), “Preference for insuring against probable small losses: insurance implications,” Journal of Risk and Insurance 44(2), 237-258.
Slovic, P., B. Fischhoff, S. Lichtenstein (1980), Facts and fears: Understanding perceived risk. Societal risk assessments: how safe is safe enough? Edited by Richard C. Schwing and Walter Albers, Jr. Plenum Press, New York.
Starmer, C., R. Sugden (1991), “Does the random-lottery incentive system elicit true preferences? An experimental investigation,” American Economic Review 81(4), 971-78.
Thaler, R.H., Johnson E.J. (1999), “Gambling with the house money and trying to break even: the effects of prior outcomes on risky choice,” Management Science 36 (6), 643-60.
Traub, S., C. Seidl, A. Morone, (2006), “Relative Deprivation, Personal Income Satisfaction, and Average Well-Being under Different Income Distributions” in M. McGillivray (ed.), Inequality, Poverty and Human Well-being, Palgrave, 2006.
Tversky, A., P. Slovic, and D. Kahneman (1990), “The Causes of Preference Reversal,” American Economic Review, 80, 204-217.
Tversky, A., S. Sattath, and P. Slovic (1988), “Contingent weighting in judgment and choice,” Psychological Review 95: 371-84.
Tversky, A., Kahneman D. (1981), “The framing of decisions and the psychology of choice,” Science 221,453-458.
Viscusi, W. K., W. N. Evans (1990), “Utility functions that depend on health status: estimates and economic implications,” American Economic Review 80 (3), 353-74.