Article Dans Une Revue Journal of Economic Behavior and Organization Année : 2020

Optimal insurance design under narrow framing

Résumé

In this paper, we study insurance decisions when the policyholder evaluates insurance with narrow framing. We show that due to aversion to risk on the net insurance payoff, i.e., insurance indemnity minus insurance premium, narrow framing reduces insurance demand. This helps explaining the observed low insurance demand in many insurance markets. We also show that the optimal insurance contract involves a deductible and the coinsurance of losses above the deductible when transaction costs depend on the actuarial value of the policy. Moreover, when the policyholder is loss averse over the net insurance payoff, a fixed indemnity equal to insurance premium should be paid for a range of intermediate losses.

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Dates et versions

hal-04227370 , version 1 (04-10-2023)

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Jiakun Zheng. Optimal insurance design under narrow framing. Journal of Economic Behavior and Organization, 2020, 180, pp.596-607. ⟨10.1016/j.jebo.2020.05.020⟩. ⟨hal-04227370⟩

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