The Impact of Regret on the Demand for Insurance

31 Pages Posted: 24 Dec 2004

See all articles by Michael Braun

Michael Braun

Southern Methodist University (SMU) - Marketing Department

Alexander Muermann

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Abstract

We examine optimal insurance purchase decisions of individuals that exhibit behavior consistent with Regret Theory. Our model incorporates a utility function that assigns a disutility to outcomes that are ex-post suboptimal, and predicts that individuals with regret-theoretical preferences adjust away from the extremes of full insurance and no insurance coverage. This prediction holds for both coinsurance and deductible contracts, and can explain the frequently observed preferences for low deductibles in markets for personal insurance.

Suggested Citation

Braun, Michael and Muermann, Alexander, The Impact of Regret on the Demand for Insurance. Available at SSRN: https://ssrn.com/abstract=632829

Michael Braun (Contact Author)

Southern Methodist University (SMU) - Marketing Department ( email )

United States

Alexander Muermann

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria
+43 1 31336 4948 (Phone)
+43 1 31336 90 4948 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria

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