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Preference for Insuring against Probable Small Losses: Insurance Implications

Paul Slovic, Baruch Fischhoff, Sarah Lichtenstein, Bernard Corrigan and Barbara Combs
The Journal of Risk and Insurance
Vol. 44, No. 2 (Jun., 1977), pp. 237-258
DOI: 10.2307/252136
Stable URL: http://www.jstor.org/stable/252136
Page Count: 22
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Preference for Insuring against Probable Small Losses: Insurance Implications
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Abstract

A series of laboratory studies of insurance decision making shows that people buy more insurance against events having a moderately high probability of inflicting a relatively small loss than against low-probability, high-loss events. Two explanations are discussed, both contrary to traditional utility theory. One postulates a utility function convex over losses. The second asserts that people refuse to protect themselves against losses whose probability is below some threshold. This research provides insight into other, often puzzling, facts about people's insurance behavior. Relevance for public policy is discussed.

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